Question
What is Unearned Income? How is it adjusted in the Final Accounts?
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Answer
Unearned Income means an income that has not been earned but is received in advance. Sometimes an amount is received during a year in respect of an income that relates partially or fully to the next year. For example, rent for the month of April, 2019 is received in March, 2019. It is an income for the year ending on 31st March, 2020 but is received in the current year, it is Unearned income or Income received in advance. It adjusted in the Final Accounts: Example: Rent received during the year ₹ 36,000 including ₹ 6,000 for the is next year. Rent Received Account (₹ 30,000) is closed by transferring to the credit side of the Profit and Loss Account and Rent Received in Advance (₹ 6,000) will be shown as a liability in the Balance Sheet. This is shown as below:
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