What a financial statement should look like depends on whether it is an income statement, balance sheet or cash flow statement. Unearned revenue does not directly affect the cash flow statement, but as a current liability the fluctuation of its balance from year to year will influence the value of the operating activities on the financial statements.

The Cash Flow Statement: Tracing the Sources and Uses of Cash

Unearned revenue is cash received by a business for goods or services yet to be provided. Unearned revenue can be accrued in a variety of different ways.

For example, a one-year gym membership. When this right is purchased, the gym would get the cash for a year of service it has yet to provide. So when the cash is originally received, it will be recorded as unearned revenue.

Operating activities, in terms of financial reporting, relates to a section of the cash flow statement.

Cash Flow Computations - Indirect Method

The cash flow statement is one of the four standard statements provided by businesses when they report their financial data to investors and debtors. Cash generated or spent on long-term investments or capital improvements are excluded from this calculation. Unearned revenue affects the calculation of the cash flow section of operating activities indirectly.

The operating income portion of the cash flow statement is comparative; the focus is how much an account increased or decreased from last year. As a result, the net cash flow from operations equals net income plus depreciation expense, plus losses from sale of assets, minus gains from sale of assets, minus increases in current asset, plus decreases in current assets, plus increases in current assets, minus decreases in current assets.

When preparing financial statements, consult with a certified public accountant to ensure that everything is done according to the appropriate accounting guidelines. This article does not provide legal advice; it is for educational purposes only.

Use of this article does not create any attorney-client relationships. John Cromwell specializes in financial, legal and small business issues. Cromwell holds a bachelor's and master's degree in accounting, as well as a Juris Doctor.

He is currently a co-founder of two businesses. The Difference Between Revenue on an Income Statement and Deferred Revenue on a Cash Flow Statement. Skip to main content. Unearned Revenue Unearned revenue is cash received by a business for goods or services yet to be provided. Operating Activities Operating activities, in terms of financial reporting, relates to a section of the cash flow statement.

Unearned Revenue Unearned revenue affects the calculation of the cash flow section of operating activities indirectly. Considerations When preparing financial statements, consult with a certified public accountant to ensure that everything is done according to the appropriate accounting guidelines. Current Liability Definition Accounting Crosswords.

Cash Flow Statement AccountingCoach: What Is Cash From Operating Activities? About the Author John Cromwell specializes in financial, legal and small business issues. Suggest an Article Correction. More Articles Accrued Revenue Affecting Net Income Effects of Notes Payable on Cash Flow The Difference Between Revenue on an Income Statement and Deferred Revenue on a Cash Flow Statement How to Report Bad Debt on Cash Flow Statements.

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