A client pays the firm ARC an amount of ₹12,000 on 28th February to avail services for the next 60 days. ABC uses accrual basis of accounting and closes the books on 31 March. Which account (and what type of account) will be involved as recorded in the balance sheet?
Unearned Income (Liability)
The client paid ₹12,000 on 28th February for services to be rendered over the next 60 days. Under the accrual basis, revenue is recognised only when earned. As at 31st March, the firm has received cash but has not yet fully rendered the services, so the unearned portion represents an obligation to deliver services in future. This is classified as "Unearned Income" (also called Income Received in Advance), which is a Liability shown on the liabilities side of the balance sheet, not an asset. Hence the correct pairing is Unearned Income (Liability).
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