Unearned Revenue is which type of account?

• A. Asset
• B. Liability
• C. Revenue
• D. Expense

Answer: (B)

Unearned revenue is a liability because it records an obligation to provide goods or services in the future for cash already received. Since the company has collected money before earning it, it hasn’t yet delivered the promised item or service, so it owes something to the customer.

On the balance sheet, this amount appears as a liability (often a current liability if the obligation is to be fulfilled within a year). A typical entry when the payment is received is to increase cash and create an unearned revenue liability. As the company fulfills its performance obligation, it reduces the unearned revenue and recognizes revenue.

So, unearned revenue is classified as a liability, not an asset, revenue, or expense.