ACC 281 Week 3 DQ1 - 7421

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Week 3 DQ1

What types of industries have unearned revenue? Why is unearned revenue considered a liability? When is the unearned revenue recognized in the financial statements? Provide a specific example.

What types of industries have unearned revenue?

 

Unearned revenue is often found in industries where customers pre-pay for services.  Some of these industries are magazine and newspapers industry, the insurance industry such as health and vehicle, cell phone carriers, cable companies, and the airline industry.  

 

Why is unearned revenue considered a liability?

 

Unearned revenue is viewed as a liability because the company that collects it has not yet earned the revenue because the services that are to be performed have not yet been provided. So if customers cancel a service, the company may have to refund the unearned income.  

 

When is the unearned revenue recognized in the financial statements? Provide a specific example.

 

Under the matching principle, expenses and earnings must match so the company can only recognize the revenue after the services have been performed.  One example is in the insurance industry where customers prepay for coverage either a year (as in the case of home insurance) or by month (as in the case of health insurance).

 

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Week 3 DQ1

What types of industries have unearned revenue? Why is unearned revenue considered a liability? When is the unearned revenue recognized in the financial statements? Provide a specific example.

What types of industries have unearned revenue