Texas A&M University (TAMU) ACCT 209 Survey of Accounting Principles Exam 1 Practice

When cash is received from customers for services to be performed later, you record an increase in cash (assets) and an increase in a liability called unearned revenue. The company now has an obligation to provide the service in the future, so a liability is created. Since the revenue has not yet been earned, there is no immediate change to stockholders’ equity. The revenue will impact equity only when the service is actually performed and the liability is reduced and revenue is recognized. So the description is: assets increase; liabilities increase; stockholders’ equity remains unchanged.