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Definition: Companies incur unearned revenue when customers prepay for a service or product.
Advice: Imagine that you have a magazine subscription. You may be required to pay for a year's subscription upfront. The magazine company will put the cash on its books. However, it can't book it as revenue because the company still has the liability to provide you with 12 issues of its magazine. Therefore, a "contra account" is set up to account for this liability--this account is called unearned revenue.
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