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Unearned Revenue

Unearned revenue is a liability account that increases when customers pay in advance of delivery of goods or services. When the goods or services are provided, unearned revenue is decreased and the revenue account is increased. For example, many contracts require a customer to pay a deposit. In many cases the deposit is not returnable, and is simply credited to the invoice to the customer, reducing the amount that the customer will ultimately owe. When the deposit is collected, it is accounted for as a current liability.

After the contract is performed, the revenue is considered earned.