Question

Discuss liabilities impact on a companies Income Statement and Balance Sheet. Also the role unearned review plays in this impact.

Answer 1

Liability refers to an obligation of the business to pay during the time frame. Expense until not paid off are termed and treated as liability in nature. In the ledger the payable accounts such as wages, accounts payable and taxes due are treated as liabilities which decreased the owner's equity. The company's income statement and balance sheet through the net income are linked for a period and the subsequent rise, or fall, in equity that results. The owner’s equity statement is considered a link between balance sheet and the income statement.

Income which is generated however not earned is known as unearned revenue. The unearned amount would be recorded initially as a liability account such as Deferred Revenues, Deferred Income, or Customer Deposits. When amount is earned, the liability account is decreased and the earned amount would be reported on the income statement as revenues.