Final answer:
Unearned revenue is indeed a liability because it reflects money received for goods or services owed to customers. It gets recognized as earned revenue once the service or product is provided, reducing the liability and aligning with the matching principle of accounting.
Step-by-step explanation:
Unearned revenue is considered a liability because it represents a payment received from a customer for products or services that have not yet been delivered or performed. Essentially, the company owes the service or product to the customer, reflecting a company's obligation to provide value in the future. In accounting terms, when a company receives a payment for a service or product that it will provide in the future, it must record this payment as unearned revenue on its balance sheet under current liabilities. Over time, as the service is performed or the product is delivered, the unearned revenue is recognized as earned revenue, and the liability decreases. This process ensures income is matched with the expenses in the proper accounting period.
Therefore, the statement "unearned revenue is a liability" is true. Recognizing unearned revenue as a liability is an application of the accounting principle known as the matching principle, which dictates that expenses should be recorded during the period they are incurred, regardless of when the transfer of cash occurs.