The transaction to record unearned revenue results in an increase to an asset account.

Question

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Unearned revenue represents an obligation to provide goods or services in the future. As such, it is recorded as a liability on the balance sheet. However, when cash is received in advance for these goods or services, it is recorded as a debit to the cash account and a credit to unearned revenue (a liability account). As the goods or services are provided, the liability is reduced and the corresponding revenue is recognized. This results in an increase to an asset account (such as accounts receivable) since the company has now earned revenue and is entitled to receive payment.

The Transaction to Record Unearned Revenue Results in an Increase