A new sales representative, Mark Yount, has just received his copy of the month-

Question

A new sales representative, Mark Yount, has just received his copy of the month-end financial       reports. He is puzzled by the term "unearned revenue." He left the following email message for you on the company's bulletin board system:   What is this? Creative Accounting, or what? Line item 12 on year-to-date financials shows over $25Gs ($25,000) in Unearned Revenue! Come on, guys! Either we earned it, or we didn't . . . Right? Is this how you guys lower our commissions? Required: Write a response to send to Mark.

Explanation / Answer

Unearned Revenue is the revenue which is not yet been earned.It is unearned because,in the case of a service company ,service which is agreed upon by the company has not been performed completely or incase if the company is involved in manufacturing and selling products then the company has not delivered the product to the customer.

Unearned revenue is to be shown on liability side .This account is placed on liabilities side because cash has been received for revenue that has not yet been earned.

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