Unearned revenues are liabilities because:
A) no cash has changed hands.
B) goods or services have been paid for, but not yet provided to the customer.
C) the company is transferring them to another period for tax reasons.
D) the customer may someday return items purchased for a refund.

Question

Quizplus · Accepted Answer

Unearned revenues are liabilities because they are cash received by a company in advance of providing goods or services to the customer. The company has an obligation to provide the goods or services in the future, which creates a liability on their financial statements. Option A is incorrect because some sort of cash has been received. Option C is incorrect because it lacks relevancy to the question. Option D is incorrect because unearned revenues are not related to the customer returning items purchased for a refund.

Unearned Revenues Are Liabilities Because