Unearned (prepaid) revenue is best described as what?

Unearned (prepaid) revenue is essentially payment received by a business for goods or services that have not yet been delivered or performed. When customers pay in advance before the company provides the service or good, this creates a liability for the business, reflecting its obligation to provide the service or deliver the product in the future. This situation is common in various industries, such as memberships, subscriptions, or pre-sales of products.

A clear understanding of unearned revenue is crucial for accurate accounting practices. It highlights the principle of revenue recognition, where income is recognized when earned, not necessarily when received. This ensures that financial statements accurately reflect the company's financial performance and position.

In contrast, the other choices indicate different concepts. Money earned by the business for past services refers to revenue that has already been recognized and is not related to unearned revenue. Money owed to external parties for expenses pertains to liabilities and does not reflect money received in advance. Lastly, money paid in advance for future benefit could refer to prepaid expenses rather than unearned revenue, which specifically ties to revenue yet to be earned by providing goods or services.