Unearned revenue is money a business has received in advance for products or services it has not yet provided. It is recorded as a liability on the balance sheet — because the company still owes the customer something.
For example, when you pay for a 12-month gym membership upfront, the gym cannot count all that money as revenue on day one. Each month, they earn one-twelfth of the total and move it from unearned revenue to earned revenue.
This concept is a cornerstone of accrual accounting. Revenue is only recognized when the service is actually delivered — not when the cash is received.