what is liabilities overstated in unearned revenues? and it's examples?

When liabilities are overstated in unearned revenues, it means that the amount recorded as a liability for unearned revenues is higher than the actual amount owed to customers. Unearned revenues are payments received in advance for goods or services that are yet to be delivered.

Examples of liabilities overstated in unearned revenues include:

1. Prepaid subscriptions: A magazine company receives payment for a one-year subscription in advance. If the company records the full amount as a liability but fails to recognize the revenue earned each month, the liability for unearned revenues will be overstated.

2. Rent received in advance: A landlord receives rent payment for the next six months in advance. If the landlord records the full amount as a liability but fails to recognize the revenue earned each month, the liability for unearned revenues will be overstated.

3. Gift cards: A retail store sells gift cards to customers. If the store records the full value of the gift cards as a liability but fails to recognize the revenue when the gift cards are redeemed, the liability for unearned revenues will be overstated.

In all these examples, the overstatement of liabilities in unearned revenues occurs when the revenue is not recognized in the appropriate accounting period, leading to an inflated liability balance.