Which of the following is an example of unearned revenue in accounting?

• A. A paid invoice for services rendered
• B. A subscription payment received prior to service delivery
• C. A loan received by a business
• D. An investment in company shares

Answer: (B)

Unearned revenue refers to money received by a business for services or goods that have not yet been delivered or performed. In this context, the correct answer is subscription payment received prior to service delivery.

When a customer pays for a subscription, they are providing cash upfront for future services, such as access to content over a subscription period. Until the service is actually provided, the company recognizes this payment as a liability on its balance sheet, reflecting its obligation to deliver the promised service in the future. As the service is delivered over time, the company will recognize this revenue on the income statement.

In contrast, a paid invoice for services rendered represents earned revenue, as the company has already completed the work. A loan received does not constitute revenue; it is a liability that the business must repay. Additionally, an investment in company shares pertains to equity and does not involve revenue recognition at all. Understanding unearned revenue is important for accurately representing a company's financial obligations and ensures compliance with GAAP principles regarding revenue recognition.