What is defined as unearned revenue?

Unearned revenue is defined as funds that a business receives in advance for goods or services that have yet to be delivered or performed. This situation arises when a customer pays for a product or service before it is actually provided. At this point, the business has an obligation to fulfill the service or deliver the goods in the future, which is why it is classified as a liability on the balance sheet until the service is rendered or the goods are delivered. Once the company fulfills its obligation by delivering the product or service, the unearned revenue is then recognized as earned revenue on the income statement.

In contrast, the other options describe different scenarios. Revenue earned after services have been rendered pertains to normal revenue recognition practices. Payments made to suppliers refer to expenses rather than revenue. Revenue from cash sales represents immediate earned revenue, as the goods or services are exchanged for cash at the point of sale. Therefore, they do not align with the concept of unearned revenue, which specifically involves receiving payment prior to delivering the corresponding goods or services.