The adjusting entry for an unearned revenue has the effects of reducing liabilities and increasing net income.

Question

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An unearned revenue represents a liability that is created when a company receives payment from a customer for goods or services that it has not yet delivered. When the company delivers the goods or services, the liability is reduced, and the revenue is recognized. Therefore, the adjusting entry for unearned revenue involves decreasing the liability (credit) account and increasing the revenue (debit) account, which results in an increase in net income.

The Adjusting Entry for an Unearned Revenue Has the Effects