Unearned fees appear on the

A) balance sheet as a current liability
B) income statement as revenue
C) balance sheet in the current assets section
D) balance sheet in the stockholders’ equity section

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The Correct Answer for the given question is Option A) balance sheet as a current liability.

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Unearned Fees

Unearned Fees is the amount of money that is received by an individual or company for a service or product that has yet to be provided or delivered. It can be thought of as a “prepayment” for goods or services that a person or company is expected to supply to the purchaser at a later date.Unearned Fees is recorded on a company’s balance sheet as a current liability because it represents a debt owed to the customer. Once the product or service is delivered, unearned fees becomes revenue on the income statement. Receiving funds early is beneficial to a company as it increases its cash flow that can be used for a variety of business functions.

In the initial transaction, the unearned revenue account is debited and the cash account is credited, since unearned revenue is a liability for the recipient of the payment. The unearned revenue account is debited every time a company earns revenue, and the revenue account is credited every time a company earns revenue. On the balance sheet, unearned revenue is typically categorized as a current liability. The company would overstate revenues and profits initially, and then understate them for the additional periods during which the revenues and profits should have been recognized. If such revenues and profits were not dealt with in such a manner, and recognized all at once, then revenues and profits would initially be overstated. Revenues are also recognized at once, but related expenses are not. This is a violation of the matching principle.

Unearned Revenue Journal Entry

You will need to adjust the unearned revenue balance sheet and journal entries when a customer prepays for a service. By using double-entry accounting, you will need to credit one account and debit another account with corresponding amounts. Your journal should record unearned revenue as a credit to the unearned revenue account and a debit to the cash account. This entry shows that a service has been received on credit, a payment made in advance for goods or services to be rendered.

The business will need to revise the previous journal entry with a new double-entry after the goods or services have been rendered and the customer has received what they paid for. This amount will be credited to the service revenues account rather than deducted from the unearned revenue account.Unearned revenue must be recorded twice: once when it is received and once when it is earned.

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Smirti

(Founder of Management Notes)
MBA,BBA.

I am Smirti Bam, an enthusiastic edu blogger with a passion for sharing insights into the dynamic world of business and management through this website.

I hold a MBA degree from Presidential Business School, Kathmandu, and a BBA degree with a specialization in Finance from Apex College,

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Unearned fees appear on the