When revenue is earned after the earlier receipt of cash, an adjustment that increases a revenue account and decreases a liability account is recorded.

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This situation describes unearned revenue, where cash is received before the service is performed or goods are delivered. As the service is performed or goods are delivered, an adjustment is made to recognize the earned revenue, increasing a revenue account and decreasing the liability account (unearned revenue) to reflect that the obligation has been fulfilled.

When Revenue Is Earned After the Earlier Receipt of Cash