Unearned service revenue occurs when which of the following situations takes place?

• A. A company provides a service and receives payment at the same time.
• B. A company provides a service and receives payment after the service is performed.
• C. A company incurs an expense but has not yet paid for it.
• D. A company receives cash from a customer before providing the service.

Answer: (D)

Verified step by step guidance

1. Understand the concept of unearned service revenue: Unearned service revenue is a liability that arises when a company receives payment from a customer before providing the agreed-upon service. This means the company owes the service to the customer in the future.
2. Analyze the options provided in the question: Each option describes a different financial scenario. We need to identify the one that matches the definition of unearned service revenue.
3. Evaluate the first option: 'A company provides a service and receives payment at the same time.' This describes a situation where revenue is earned immediately, not unearned service revenue.
4. Evaluate the second option: 'A company provides a service and receives payment after the service is performed.' This describes accounts receivable, not unearned service revenue.
5. Evaluate the fourth option: 'A company receives cash from a customer before providing the service.' This matches the definition of unearned service revenue, as the company has received payment but has not yet performed the service.