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January 2, 2008

What is the difference between unearned revenue and unrecorded revenue?

In financial accounting, unearned revenue refers to amounts received prior to being earned. For example, if ABC Service Co. receives $24,000 on December 31, 2007 for a one-year service agreement covering January 1 through December 31, 2008, the entire $24,000 is unearned as of December 31, 2007. On the December 31, 2007 balance sheet ABC should report a liability such as Unearned Revenues for $24,000. During 2008 ABC should move $2,000 per month from the liability account on its balance sheet to a revenue account on its income statement.

I associate unrecorded revenue with revenues that were earned, but not yet recorded in a company’s accounting records. For example, an electric utility will provide electricity to customers for up to one month before it reads the customers’ meters, calculates the bills and records the billings as revenues and accounts receivable. As a result, the electric utility will have up to one month of unrecorded revenue. At each balance sheet date, the utility should accrue for the revenues it earned but had not yet recorded. This is done through an adjusting entry that debits a balance sheet receivable account and credits an income statement revenue account.

Learn more about Adjusting Entries.

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Comments

12 Responses to “What is the difference between unearned revenue and unrecorded revenue?”

  1. reena on January 4th, 2008 7:23 am

    Its a little bit complex to understand.
    But still it more explanation is give I hope people can better understand

  2. Ernie on January 8th, 2008 5:00 am

    It is ok but more examples are required…………..

  3. Kamal on January 11th, 2008 3:27 am

    plz clear more deeply

  4. Ramesh on January 15th, 2008 10:37 am

    The explanation is went way with more professional.

  5. angela on January 21st, 2008 4:19 pm

    if a company classified all amounts in unarned revenue as earned revenue , how does it affect current liabilities,long term liabilities, stockholder’s equity and cash flow from operations?

  6. waqar on February 8th, 2008 5:16 am

    i understood but not fully.
    there should be practical examples to show how to make an entry or an adjusting entry to make a person more clear.
    Regards
    waqar anwar
    Assistant Manager Finance
    National Commission For Human Development
    Pakistan.

  7. Despina on February 14th, 2008 11:58 am

    Not pretty clear….
    Please give more info or examples
    thanks

  8. mashal ali khan on April 3rd, 2008 3:40 pm

    ITs fine …but threr should be more explaination .which clearify how to pass an entry …u should give more example with it to know the difference ….

  9. George on September 12th, 2008 3:35 pm

    Absolute wonderful website! Great examples, easy to understand! Where were you during my undergrad years!!

  10. Ritesh Gosalia on June 21st, 2009 9:13 am

    It’s very simple to understand this accounting entries and concepts.

    Thanks for upgrading knowledge for the same

  11. John on June 27th, 2009 12:35 pm

    yes, I agree, an additional explantion is needed, more examples, pls!

  12. ACoach on June 27th, 2009 3:13 pm

    An additional explanation with examples is available on our free website, AccountingCoach.com. Go to the tab Topics Explained and select “Adjusting Entries.”

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