Question

Unearned revenues refer to a(n)_____________.

a. Asset that will be used over time.
b. Expense incurred because a customer has paid in advance.
c. Liability that is settled in the future when a company delivers its products or services.
d. Increase in revenues as a result of delivering products or services to a customer.
e. Decrease in an asset.

Answer 1

Answer: c. Liability that is settled in the future when a company delivers its products or services.

Explanation: Firstly, liability an obligation, debt or responsibility owed to someone. They are a company's legal financial debts or obligations that are incurred during the course of business operations. Unearned revenues, a type of current liability (short term liability), defines a firm's liability to deliver goods and/or services at a future date after being paid in advance. The unearned revenue amount will be deducted in the future with an offsetting entry once the product or service is delivered.

Answer 2

The answer is C.

Step-by-step explanation:

Unearned revenue is a liability because the amount for the transaction has already been collected while the goods or services have not been delivered. Example of unearned revenue is magazine subscription fee for a year and the money for the subscription has been collected at the beginning of the year.

Revenue is only recognized as the service is being rendered, maybe monthly or quarterly while the unearned revenue (liability) in the balance sheet decreases by the same amount