Which of the following does NOT apply to unearned revenues?

• A. They represent cash received before services are performed.
• B. They are reported as assets on the balance sheet.
• C. They are recognized as revenue when the related service is performed.
• D. They are initially recorded as liabilities.

Answer: (B)

Verified step by step guidance

1. Understand the concept of unearned revenues: Unearned revenues represent cash received by a company before it has provided the related goods or services. This creates an obligation for the company to either deliver the service or refund the cash, making it a liability.
2. Review the treatment of unearned revenues on the balance sheet: Unearned revenues are classified as liabilities because they represent obligations to perform services or deliver goods in the future. They are not considered assets, as assets represent resources owned by the company.
3. Analyze the revenue recognition principle: Unearned revenues are recognized as revenue only when the company fulfills its obligation by performing the service or delivering the goods. This aligns with the accrual basis of accounting.
4. Evaluate the options provided: Identify which statement does NOT apply to unearned revenues. The statement 'They are reported as assets on the balance sheet' is incorrect because unearned revenues are liabilities, not assets.
5. Conclude the analysis: The correct answer is the statement that contradicts the nature of unearned revenues, which is 'They are reported as assets on the balance sheet.'