Journal Entry for Income Received in Advance or Unearned Income

Sometimes, businesses receive money relating to the coming month or year which has not been earned yet. Such an income that has not been earned yet but has been received in advance is called Unearned Income. Unearned Income is considered to be a liability by the business. 

Ex- If the Commission for the month of July is received in the month of June, that commission will be termed as Unearned Commission.

Journal Entry: 

Example: Commission received in advance ₹2,000.

Solution:

Next year, unearned commission will be adjusted as:

Journal Entry: 

Example: (On the basis of the above example)

Solution: