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The Land Advisor
The Land Advisor, Experienced Land Investor
Category: Finance
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Experience:  Retired successful "land baron", financier and investor.
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income received in advance is called what

Customer Question

is it true income, accrued income, unearned income or net income
Submitted: 10 years ago.
Category: Finance
Expert:  The Land Advisor replied 10 years ago.
From an accounting standpoint, income received in advance is a liability:

"...It may occur that you receive income or a portion of an income in advance. In the financial statements all income must be shown for a period of one year or 12 consecutive months or accounting periods or reporting dates. The income account must be adjusted to reflect the correct income amounts at the end of the financial year. The amount of the income will decrease in the books of the business and a liability is created - Income received in advance. It is regarded as a liability to the business at the end of the financial year as the income is only receivable in the next financial year...."


Same view expressed here:

"...Vice versa, revenues received in advance are payment received from customers for work not yet done or goods to be delivered at some future date.

So how do we treat revenues received in advance?

Revenues received in advance:

Are money (cash or cheque) received in advance.

They are actually liabilities to the business as the business has still not earned the revenue because goods or services have still not been provided to the customers...."


So here is your answer, "unearned income" of the four choices you offered, from the college accounting site:

"...The portion that goods have been delivered or services being provided during the accounting period are treated as incomes in the Income Statement whilst those not earned yet are treated as a current liability which is called prepaid revenues, deferred revenues and unearned revenues..."