Final answer:
Unearned revenue is gradually recognized as revenue on a company's income statement as it delivers goods or services to subscribers. For example, a newspaper company would recognize a portion of the unearned revenue each month until the full amount has been recognized.
Step-by-step explanation:
In the case of unearned revenue, it represents the money that a company receives in advance for goods or services that it has not yet delivered. Over the course of a year, as the company delivers papers and online content to subscribers, the unearned revenue is recognized as revenue on the company's income statement. This means that the company gradually reduces the unearned revenue balance and increases its revenue. For example, if a newspaper company receives $120 from a subscriber for a one-year subscription, it would initially record the $120 as unearned revenue. As each month passes, the company would recognize $10 of the unearned revenue as revenue on its income statement, until the full $120 has been recognized.