Income Statement With Unearned Revenue

It is recognized as a current liability in the balance sheet which will be settled with the revenue when it is earned in the future period.

Income statement with unearned revenue. Revenue in the income statement will only be recorded if the revenue is realized meaning the services have been. It is the income statement item that the company needs to recognize as they already earned it when they provided goods or services to the customer. At that time the unearned revenue will be recognized as revenue on your income statement. In the entry above we removed 6 000 from the 30 000 liability.

Income that has been generated but not earned aka unearned revenue is not included on the income statement and is considered a liability. In 2019 unearned revenue account had a balance of 6500 whereas in 2018 it amounted to 4000. Hence 1000 of unearned income will be recognized as service revenue. We are simply separating the earned part from the unearned portion.

This means that in 2019 there has been a cash inflow of 2500 as unearned revenue which had no impact on the income statement and has been recorded as a current liability in the balance sheet. The journal entry to record a prepayment would be. Service revenue will in turn affect the profit and loss account in the shareholders equity section. The balance of unearned revenue is now at 24 000.

Interest revenue 600 income summary 37 100. It is recorded in the income statement on the gains side. Receiving funds early is beneficial to a company as it increases its cash flow that can be used. Companies or individual suppliers with unearned revenue usually record it in their balance sheets as a liability.

The credit to income summary should equal the total revenue from the income statement. Of the 30 000 unearned revenue 6 000 is recognized as income. Once the product or service is delivered unearned revenue becomes revenue on the income statement.