Unearned Income / Prepaid Income Accounting Example - Definition And Meaning

What Is Income Received In Advance / Unearned Revenue Journal Entry In Accounting

You can also study about Unearned Income in Accounting with detail that is a Deferred Income for a business. It is also called Prepaid Income / Revenue in Accounting.

Income / Revenue Received In Advance Is Categorized As

It is a Current Liability for the company which received income, like fees received in advance from its clients, Commission Received In Advance, etc. but actually does not provide services to them at time of receiving the payment of services.

Unearned Revenue In Balance Sheet

Unearned Revenue T Account Or Ledger is prepared to record Transactions related to it. The normal balance of it is credit. However, when we actually render the services, then we debit it and it is recorded on balance sheet as a Current Liability on liabilities & equity side during the end of accounting period.

For Example, a transport company receives Rs.7000 or $70 rent from its passengers of the journey From Lahore to Karachi or From New York to Washington. Now, it is the liability of the company to provide services to passengers. In other words, it is the current liability of the transport company to provide services of travelling to its passengers.

Unearned Revenue / Unearned Income Journal Entry / Unearned Service Revenue Journal Entry

From the above example, the transport records the following entry in the book of business for fees received in advance in Cash / Bank:

                                                             Cash  a/c / Bank a/c   7000


                                                                            Unearned Fees a/c  7000


                                                          (Fees Received In Advance)



In the above Adjusting Entry, If fees received on account, then we debit Accounts Receivable and credit Unearned Fees account.

When the passengers actually complete their journey then the company actually earns fees as it delivers the services to them and now it is a revenue for the company, so the following adjusting entry is passed:

Unearned Revenue / Income Earned Adjusting Journal Entry Or Unearned Service Revenue Earned Adjusting Journal Entry

                                                    Unearned Fees a/c  7000

                                                                          
                                                                                  Fees Received a/c  7000


                                                             (Fees Now Earned)

Is Unearned Revenue a Contra Account?

No, It is a current liability which is not earned by company but the payment for services has been received by company in advance and services are still to be delivered in future.