Unearned Revenues are classified as which type of account?

• A. Revenue
• B. Equity
• C. Asset
• D. Liability

Answer: (D)

Unearned revenue is a liability on the balance sheet. When a company collects cash before delivering goods or performing a service, it has an obligation to the customer to provide that future goods or services. Until the obligation is satisfied, the company cannot count this as revenue, so the cash received is recorded as a liability called unearned revenue. Once the service is performed or the goods are delivered, the liability is reduced and revenue is recognized. It’s not an asset because the company does not own a resource it can control; it’s not equity because it doesn’t represent an owner’s claim.