Unearned revenues

How does an increase or decrease in unearned revenue affect the quality of earnings?

An increase in unearned revenue will likely reduce (the absolute value of) net accruals, improving earnings quality; a decrease will likely damage (vitiate? What’s a good antonym for “improve” here?) earnings quality.

s2000magician, hurt? :slight_smile:

Yes, if unearned revenue increases then according to one of the schweser mocks “the truthful leverage ratio” typically wouldn’t increase because of it


But doesnt an increase in unearned revenue just increase both asset and liabilities by the same amount leaving NOA unchanged?

No because NOA doesn’t include cash, and unearned revenue is cash paid (+a) for future revenue delivered (+L), so NOA decreases

Cash is not included in NOA.