What is unearned revenue?

Unearned revenue refers to payments received by a business for goods or services that have not yet been delivered or performed. In this context, selecting the option that states "money received before services are performed" accurately captures the essence of unearned revenue. This situation typically occurs in various industries, such as subscription services or advance ticket sales, where companies collect payment prior to the fulfillment of the actual service or delivery of products.

When a business receives unearned revenue, it records this amount as a liability on its balance sheet because there is an obligation to provide a service or product in the future. It is essential to understand that unearned revenue is not recorded as income until the services are performed or the product is delivered, which is a critical aspect of the revenue recognition principle in accounting. This ensures that revenue is only recognized when it is earned, aligning with the company's obligation to the customer.

The other options fail to accurately define unearned revenue. For instance, money received after services are performed describes earned revenue, while money that is not recognized as income is a broader concept not specific to unearned revenue. Similarly, money that increases assets does not capture the liability nature of unearned revenue, as it represents a payment received in advance rather than an asset increase