Unearned Revenue is classified as
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A. B. C. D.A
Unearned revenue represents "services or product owed" and is reported as a liability on the balance sheet.
Unearned Revenue is classified as option A: a liability.
Unearned Revenue, also known as deferred revenue or advance payments, represents the amount received by a company from its customers for goods or services that have not yet been provided. It arises when a company receives payment in advance for products or services that will be delivered or performed in the future.
The classification of Unearned Revenue as a liability is based on the fundamental accounting principle of matching revenues with expenses. When a company receives payment for products or services in advance, it has an obligation to deliver those products or services at a later date. Until the goods are delivered or services are provided, the company has an unfulfilled obligation to its customers.
Liabilities are obligations or debts owed by a company, and in the case of Unearned Revenue, it represents an obligation to provide goods or services in the future. Therefore, Unearned Revenue is recorded as a liability on the balance sheet.
Once the company fulfills its obligation by delivering the goods or providing the services, the Unearned Revenue is recognized as revenue. At that point, the liability decreases, and the corresponding amount is recognized as revenue on the income statement.
To summarize, Unearned Revenue is classified as a liability because it represents an obligation to deliver goods or services in the future. As the obligation is fulfilled, it is recognized as revenue.