Why an unearned revenue account?

Answer 1

I am not exactly sure what is trying to be asked here, but I will explain what an unearned revenue account is and hopefully that will give you the answer you are looking for.

When a company is in business, whether a merchandising business or a service business, their goal is to make money, earn a profit. Unearned Revenue is a liability account where money that is paid by a customer is listed if the customer has not received his/her merchandise or service.

Example: Let's say we are a service business and customer A wants you to paint their house. You contract with the customer to paint their house for $5,000 and the customer pays you before you do the work. You record this transaction in unearned revenue because, although you have received the money for the service, you actually haven't performed the service as of yet, in other words you haven't "earned" it. This is a liability for you, as you now owe customer A a service and until that service is fulfilled you are obligated to either perform the service (paint their house) or if unable to complete the agreement, refund their money.

Once the service is completed the Unearned Revenue account is credited and the money you were previously paid is "earned" Revenue.