CEVAP:

Customers may make advanced payments for the goods or services they will receive in the future. When the company receives an advanced payment, an obligation occurs for delivering the goods or rendering the service for which the customer has made payment. Therefore, company must record a liability in its financial statements and this liability is named unearned revenue. In this context, unearned revenues can be defined as the payments received in advance for the products or services being provided. Unearned revenue should be converted into earned revenue as consistent with the matching principle. In other words, the unearned revenue must be closed and revenue must be recognized in the income statement to the extent the goods are delivered or the service is rendered.