An Example of Deferred Revenue

---cash (asset) vs deferred revenue (liability) Example: On May 1, 2006, Company A had a new lease contract with a tenant and received $6,000 for two month rent. May 1, 2006 May 31 and June 30 2006 Cash is received. Revenue is recognized at the end of May and June. Revenue is recognized when Company A provides service. In this example, service is provided when time passes. [Journal entry on May 1, 2006] Debit Credit Cash 3,000 Unearned rent revenue 3,000 Unearned rent revenue is a liability account. Credit side of unearned rent revenue (a liability account) represents an increase. "Unearned revenue" accounts represent the amount of cash received before services are provided. Since services have not been provided yet, it is not revenue. "Unearned revenue" accounts are liabilities of the company, because they should be paid back to the other party if service is not provided in the future. [Journal entry on May 31, 2006] Debit Credit Unearned rent revenue 3,000 Rent revenue 3,000 Debit side of unearned rent revenue (a liability account) represents a decrease. Credit side of rent revenue (a revenue account) represents an increase. [Journal entry on June 30, 2006] Debit Credit Unearned rent revenue 3,000 Rent revenue 3,000 Debit side of unearned rent revenue (a liability account) represents a decrease. Credit side of rent revenue (a revenue account) represents an increase.