Would you please explain unearned income?

Answer 1

Hi Tevin,

A general explanation is that unearned income is money received from a client or customer before they receive the service or product they are buying. For example, a DJ is hired for a wedding six months from now. The DJ requires a 50% deposit to hold the date for the customer. When the DJ deposits the check, that becomes unearned income. The DJ hasn't earned the income until they provide the DJ services at the wedding in six months. The dollar amount sits on the books as a liability because the DJ owes that service to a customer. After the wedding the amount is recognized or recorded to income and the liability is removed.

This is also called unearned revenue.

Hope this helps!