Unearned Revenue
Definition:
Unearned revenue is a term used in accounting to describe money that a company has received from customers for goods or services that it has not yet delivered or performed. In simple terms, it’s money that a business has in hand but hasn’t earned yet because it hasn’t provided what was promised.
Usage Instructions:
You can use "unearned revenue" when talking about business finances, especially when discussing how companies manage their income and obligations. It’s important for understanding a company’s financial health.
Example:
Imagine you run a subscription service for a magazine. When a customer pays for a year-long subscription upfront, you receive the money immediately. However, you haven’t delivered all the magazines yet. The payment you received is considered unearned revenue until you send out all the magazines.
Advanced Usage:
In financial statements, unearned revenue is usually listed as a liability under current liabilities. This means that the company has an obligation to deliver the service or product in the future, making it an important aspect of financial reporting.
Word Variants:
- Earned Revenue: This refers to income that has been fully received and recognized after delivering the service or product. - Deferred Revenue: This is another term often used interchangeably with unearned revenue, emphasizing that the income is deferred until the service is provided.
Different Meaning:
In a broader sense, "unearned" can refer to income or benefits that someone receives without having to work for them. For example, interest from a bank account or dividends from investments can also be considered unearned income.
Synonyms:
- Deferred revenue - Prepaid income - Received but unearned income
Idioms and Phrasal Verbs:
While there aren't specific idioms or phrasal verbs that directly relate to "unearned revenue," you might encounter phrases like: - "Cash in hand" – This can refer to money received but not necessarily earned yet. - "On the books" – This means something is recorded in the financial accounts, including unearned revenue.
Understanding unearned revenue is crucial for businesses because it affects cash flow and financial planning.