What is the value of unearned revenues on the balance sheet?

• A. $2,500
• B. $5,000
• C. $3,500
• D. $0

Answer: (C)

Unearned revenue is cash collected in advance for goods or services that haven’t been provided yet, so it sits as a liability on the balance sheet. The amount shown as unearned revenue equals the value of those prepayments not yet earned. In this scenario, that amount is three thousand five hundred dollars, representing payments received before the service or delivery occurred. Once the company performs the service or delivers the goods, the liability decreases and revenue is recognized.

If more or less cash had been received in advance, or if nothing was collected in advance, the unearned revenue amount would be different (higher for more prepayments, lower or zero for less or none).