Is unearned revenue included in the income statement?
No, only the balance sheet.
To determine whether unearned revenue is included in the income statement, we need to understand what unearned revenue is. Unearned revenue, also known as deferred revenue or advance payments, refers to money received by a company for goods or services that have not yet been provided.
Typically, unearned revenue is not included in the income statement. Instead, it is recorded as a liability on the company's balance sheet. It represents an obligation to deliver products or services in the future.
The income statement, also known as the profit and loss statement, summarizes a company's revenues and expenses during a specific period of time. It is used to calculate the net income or loss of the company.
Since unearned revenue represents money that has been received but not yet earned, it is not considered revenue until the products or services have been delivered. Therefore, it does not impact the income statement until the revenue is recognized.
Once the products or services are delivered, unearned revenue is removed from the liability section of the balance sheet and recorded as revenue in the income statement. At that point, it becomes recognized as revenue and contributes to the company's net income.
In summary, unearned revenue is not included in the income statement initially, but it is recognized as revenue once the related products or services are delivered to the customer.