Unearned revenue is reported in the financial statements as:

• A. An asset on the balance sheet
• B. A liability on the balance sheet
• C. Revenue on the income statement
• D. Owner's equity on the balance sheet

Answer: (B)

Verified step by step guidance

1. Understand the concept of unearned revenue: Unearned revenue refers to money received by a company for goods or services that have not yet been delivered or performed. It represents an obligation to provide goods or services in the future.
2. Identify the classification of unearned revenue: Since unearned revenue represents an obligation, it is classified as a liability. This is because the company owes the customer either the delivery of goods or the performance of services.
3. Determine where liabilities are reported: Liabilities are reported on the balance sheet, which is one of the primary financial statements used to show a company's financial position at a specific point in time.
4. Clarify why unearned revenue is not an asset: Assets represent resources owned by the company that provide future economic benefits. Unearned revenue does not meet this definition because it is an obligation rather than a resource.
5. Conclude that unearned revenue is reported as a liability on the balance sheet: Based on the above reasoning, unearned revenue is correctly classified as a liability and appears on the balance sheet under the liabilities section.