Question

complex multi-step income statement

I am having trouble finding good examples of a multi-step income statement for companies that provide more than one type of service (my example is consulting and sales).

Does unearned revenue go somewhere on a multi-step income statement? I've found conflicting information online...

Answer 1

No, unearned revenue does not go anywhere on a multiple-step income statement.

1. In order to provide clarity over the accounting of Unearned revenue, let's first understand what "Unearned Revenue" means:

Unearned revenue refers to the amount which has been received from customers against which goods/services are to be provided in the future. It basically represents our future obligation of providing goods/services to a third party on account of consideration which has already been received. Hence Unearned revenue is treated as a "Liability account".

2. Accounting treatment of Unearned Revenue:

Following journal entry is passed for recording Unearned Revenue:

Date	General Journal	Debit ($)	Credit ($)
XX	Cash	XX
	Unearned Revenue		XX

As you can observe from the above entry, no income statement account is being affected while recording unearned revenue. Hence we can conclude that unearned revenue does not go anywhere on an income statement.

3. When Unearned revenue becomes Revenue:

Unearned revenue is recorded as revenue from operations in the income statement only when the goods/services have been actually provided to the customer. In this case unearned revenue is reversed and revenue is recorded for which following entry is passed:

Date	General Journal	Debit ($)	Credit ($)
XX	Unearned Revenue	XX
	Revenue from Operations		XX