What Is Unearned Revenue?

Definition of Unearned Revenue?

What is Unearned Revenue in accounting and what is its effect on accounting. unaccrued income would mean income that you have already received but the services of that income have not yet been rendered. unaccrued income is a type of advance income that you have taken in advance but you have not yet rendered its services. These are a type of company’s liabilities. Which is to be paid by the company in the current year.

Understanding Unearned Revenue

Orders that sell subscription-based products or services are all examples of unearned revenue. Because we have to give them in advance. If a company already generates unaccrued income, then that company makes a lot of profit. Because with the money she gets, she can increase her business. But this company has to show as a liability in the balance sheet. And the company has to provide services in the current year itself.

Examples of unearned revenue

To explain unaccrued income, let me give you an example of rent. Suppose you have given your shop on rent to someone at the rate of 10000 per month. And if you have taken 20000 rupees from the person after one month then you have taken 10000 more from that person. And it is called unaccrued income or unearned revenue in accounting. Because your rent was 10000 months but you took 10000 more.

Accrued Revenue vs. Unearned Revenue

accrued  income and unaccrued income are completely opposite to each other. accrued  income is the income which we have earned but not yet received. accrued  income consists of the person or company providing their service to another company but they have not yet been paid for that service. Accrued income is a current asset for a company or individual. Because in future he will get it and when he gets it, the asset will also be reduced.

But unaccrued income or unearned revenue is the income which we have already received as advance before rendering service. And we will have to serve you in the future. Unearned revenue is a current liability for a company or individual. And when the accountant makes his entry, he shows it in the liabilities side of the balance sheet. Accrued income is a type of current asset, whereas unaccrued income is a debt on the company.

Unearned Revenue Entry in Tally Accounting

let me tell you from rental entry

        a) Rent Rs.10000

        b) Rent received Rs. 20000

        c Unearned revenue Rs. 10000.

First we will make an entry in tally in which 20000 rent is received

When you make this entry, rent is indirect income for you and you must credit it. And if cash is coming in then it has to be debited. 20000 net profit will appear in your profit and loss account. But our fare was Rs 10000 but we have got 10000 advance. So for this we have to make another adversary as well.

After making an entry, the net profit in your profit and loss account will be 10000 and your liability will also increase to 10000. While creating an account of unaccrued income, remember to keep it in the current liability group. Because it is a type of debt that you have to repay. And finally when you want to finish it, enter it. Because by doing this entry your liability will also be equal and income will also increase by 10000.

Recording Unearned Revenue in Tally

Unearned revenue is shown as a liability on the company’s balance sheet. And it is payable in the balance sheet, because you have taken it from some person or company but you have not served yet. And over time this liability will decrease. And it will continue to appear on the company’s balance sheet until the due date until the company pays for their services.

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