All else equal, a large increase in unearned revenue in the current period would be expected to produce what effect on revenue in a future period?
A)Large increase, because unearned revenue becomes revenue when revenue is earned.
B)Large decrease, because unearned revenue implies that less revenue has been earned, which reduces future revenue.
C)No effect, because unearned revenue is a liability, so payment will use assets rather than providing revenue.
D)Large decrease, because unearned revenue indicates collection problems that will reduce net revenues in future periods.

Question

Quizplus · Accepted Answer

Unearned revenue represents an advance payment for goods and services that will be delivered in the future. When the goods or services are delivered, the unearned revenue is recognized as revenue in the income statement. Therefore, a large increase in unearned revenue in the current period suggests a promising future stream of revenue, and revenue in a future period is expected to increase.

All Else Equal, a Large Increase in Unearned Revenue in the Current