Unearned Revenue vs Accrued Revenue – What Are the Key Different?

Unearned Revenue can be defined as the money that is received by an individual or a company, in exchange for a service or a product that is yet to be provided or delivered.

Unearned Revenue can be defined as a prepayment for goods and services, that a company is expected to supply to the purchaser at a given later date.

As a result of this revenue that has been received in advance, it can be seen that there is an inherent liability in the form of unearned revenue unless the respective good or service has been delivered to the customer.

Unearned revenue can also be referred to as deferred revenue and advance payments.

As far as unearned revenue is concerned, it can be seen that it is recorded as a liability on the Balance Sheet because it is the amount that the company has received, against which goods and services have not been delivered to the customer.

However, once these goods and services have been delivered to the customer, then the amount is shown as revenue on the Income Statement.

Examples of industries where this type of revenue is most common in the construction industry or the service industry where revenues are collected in advance, but service is rendered after regular time intervals across the year.

Therefore, with subsequent months of service delivery, the amount reduces from the Current Liabilities, and is then represented in the Income Statement.

On the other hand, as far as Accrued Revenue is concerned, it can be defined as revenue that has been earned by providing a good or a service, but no cash has been received against that.

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In other words, it is the amount that is receivable from the customers, despite the fact that goods and services have been provided against the particular sale.

Accrued Revenue is mainly recorded as a receivable on the balance sheet, in order to reflect the amount of money that customers owe to the business, for the goods and services they have purchased.

The recording of accrued revenue is seen as part of the revenue recognition principle, which requires revenue to be recorded in the period when it is earned.

Regardless of the fact that the amount has not been received in cash for this particular sale transaction, yet it can be seen that this can be regarded as a current asset, primarily because of the fact that the company is likely to receive the amount for the sale that has been conducted.

Therefore, it can be seen that the main underlying difference between Unearned Revenue and Accrued Revenue is the fact that one of them is recorded as a Current Liability, whereas Accrued Revenue is recorded as a Current Asset.

Unearned Revenue is not shown in the Income Statement until the goods or services have been delivered against that sale, whereas Accrued Revenue is shown as Income, regardless of the cash collection process.

Both of these revenue types are shown in the Financial Statements, regardless of the fact that they have been paid for, or not.