Note the place to find meaning
Understanding Unearned Income: A Simple Explanation
Income Basics: Income is money you earn, like:
Net profit for businesses: Money left after expenses.
Salary for employees: Money earned for work.
Unearned Income in Accounting
In accounting, unearned income is money received for goods or services that haven’t been delivered yet. For example, if a customer pays in advance for a service you'll provide later, it's considered a liability because you owe the service.
Unearned Income in U.S. Taxation: In U.S. taxes, unearned income means money you get without working for it, such as:
Interest on deposits, Dividends from investments and Capital gains from selling assets.
Key Differences
Accounting: Unearned income is a liability until you deliver the goods or services.
U.S. Taxation: Unearned income is money from investments, like interest or dividends, and is taxed differently from earned income.
By CA L.Muralidharan and CPA L.Mukundan
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