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Hello every one,
Guys, plese explain why differed income is a liability???
In what cases will it decrease net-assets? Whats double-entry in this case?Thx
Unearned revenue or deffered revenue is the collection of cash before a good or service is provided to a client. In some instances, clients may prepay for a good or service to receive a sales discount or to meet the terms of a contractual obligation. Any collections of cash for a good or service not yet provided will be recorded as unearned (deferred) revenue. For a company to recognize the receipt of cash as revenue, it must fully earn that revenue. The receipt of cash alone does not signify that income was earned and can be recognized as such. Since this receipt of cash has not been fully earned, the unearned revenue is recorded as a liability. A liability is typically considered to be an obligation to make a monetary payment in the future, but it can also refer to the future provision of goods or services.
Entries
Dr cash
Cr unearned revenueand when services or goods are provided
Dr unearned revenue
Cr Sales
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