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Definition

Unearned revenues

Companies record cash received before revenue is earned by increasing a liability account called unearned revenues. These revenues are received before the company delivers goods and provides services.

Examples are rent, magazine subscriptions, and customer deposits for future service. Airlines such as United, American, and Delta, for instance, treat receipts from the sale of tickets as unearned revenue until they provide the flight service. Similarly, colleges consider tuition received prior to the start of a semester as unearned revenue.

When a company receives cash for future services, it increases (credits) an unearned revenue account (a liability) to recognize the liability. Later, the company earns revenues by providing service.

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