Before I learned that unearned revenues are cash received and recorded as liabilities before revenue is earned, I thought maybe our office recorded restitution payments as unearned revenues because we did not actually earn this revenue. The revenue is received for victims of crimes committed to them, such as theft, worthless check or criminal damage to property. After our office receives this revenue they will print and mail a check to the victim.
Do you think this would this be an example of unearned revenue? Any ideas as to how this organization can record this transaction?
Unearned revenue contemplates a sale. First, let's review when revenue is recorded:
The definition for revenue recognition is "that revenue generally is realized or realizable and earned when all of the following criteria are met:
1. Persuasive evidence of an arrangement ...
The solution defines the conditions that are required to classify payments as a sale. The true nature of the transactions by this agency are defined and explained in the solution.