Customer money received before the work is done — a liability until earned.
Unearned (deferred) revenue is money received from customers before the product or service is delivered: deposits, retainers, prepaid subscriptions. Counterintuitively, it's a liability — the business owes either delivery or a refund.
As delivery happens, the liability converts to revenue — that's when it's earned. Booking customer deposits straight to income inflates revenue now and misstates later periods; it also hides real obligations. Service businesses that take retainers live and die by tracking this correctly.
A designer takes a $5,000 project deposit in March and delivers in May: March books show $5,000 cash and $5,000 unearned revenue. In May the liability zeroes out and $5,000 of revenue is recognized — in the period the work actually happened.
Accrual Accounting · Accounts Receivable (A/R) · Current Liabilities — or browse the full plain-English glossary.
Reading a definition is the easy part — the Daily Challenge (ten questions a day, free, no signup) is how terms like this become reflexes. Going for certification? Start with the free ProAdvisor readiness check.