Discussion 2 2022-12-15 at 5.44.08 PM

Revenues which have been received but not yet earned are unearned revenues and are recorded as a liability. Once the company has started earning by providing the service, then the unearned will transfer the value over to the sales revenue. For example, they prepaid a year membership but only a month has passed. Only the value of that month can be transferred over to the sales revenue, while the rest remains unearned. The proposal is not ethical. Per the accounting standards a company can not consider advanced payments paid as revenue because its unearned. If something happened and a person decided to withdraw their membership, then the company will have to readjust the prior sales figures which would have misled the investors or stakeholders. The investors in the company would be affected because the information that was reported would have been falsely inflated. When the information came out and the irregularities were exposed, the investors would want to withdraw their existing investments and the future investors would not see that company as a reputable company to do business with. Plus the government could come in an penalize the company if they found that the irregularities if they felt that the irregularities were intentional or against their guidelines. Adkins, T. (2022, July 13). Financial statement manipulation. Investopedia. Retrieved October 31, 2022, from https://www.investopedia.com/articles/fundamental-analysis/financial-statement-manipulation.asp Liberto, D. (2022, October 9). Unearned revenue: What it is, how it is recorded and reported. Investopedia. Retrieved October 31, 2022, from https://www.investopedia.com/terms/u/unearnedrevenue.asp#:~:text=Unearned%20revenue%20is%20recorded%20on,services%20owed%20to%20a%20customer.