Unearned Revenue

1. Explain the need for an adjusting entry in the reporting of unearned revenue and be able to prepare that adjustment.

2. Prepare an income statement, statement of retained earnings, and balance sheet based on the balances in an adjusted trial balance.

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3. Explain the purpose and construction of closing entries.

The last adjusting entry to be covered at this time is unearned (or deferred) revenue. Some companies operate

in industries where money is received first and then earned gradually over time. Newspaper and magazine

businesses, for example, are paid in advance by their subscribers and advertisers. The earning process becomes

substantially complete by the subsequent issuance of their products. Thus, the December 28, 2008, balance sheet

for the New York Times Company reported a liability titled “unexpired subscriptions” of $81 million. This balance

represents payments collected from customers who have not yet received their newspapers.