How does unearned revenue arise? Why can it be classified properly as a current liability? Give several examples of business activities that result in unearned revenues.

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Unearned revenue, also known as deferred revenue or advance payments, arises when a company receives payment from a customer for goods or services that have not yet been delivered or earned. It represents an obligation of the company to provide the goods or services in the future.

Unearned revenue can be classified properly as a current liability because it represents an obligation expected to be fulfilled within the next operating cycle or one year, whichever is longer. As the company delivers the goods or services or meets the conditions specified in the contract, the unearned revenue is gradually recognized as revenue on the income statement.