The Correct Answer and Explanation is:
The correct answer is accounts receivable.
Under the accrual basis of accounting, revenue is recognized when it is earned, regardless of when the cash is actually received. The creation of a customer invoice is the formal transaction that records this earned revenue. Every accounting transaction requires a double entry, meaning at least one account is debited and at least one account is credited, with the total debits equaling the total credits.
When a company creates an invoice for a customer, it signifies that the company has provided a good or service and now has a legal claim to payment. This claim is an asset for the business because it represents a future economic benefit. The specific asset account used to track money owed by customers is called accounts receivable. According to the rules of debit and credit, asset accounts are increased with a debit. Therefore, creating an invoice increases what is owed to the business, resulting in a debit to the accounts receivable account.
Simultaneously, the business must record the income it has earned. Income or revenue accounts increase a company’s equity. Revenue accounts are increased with a credit. So, an account such as “Sales of product income” or “Service Income” would be credited. The complete journal entry for creating an invoice is a debit to accounts receivable and a credit to a revenue account.
The other options are incorrect for this specific transaction. The checking account is only debited later when the customer pays the invoice and the cash is received. Sales of product income is credited, not debited. Owner’s equity is indirectly affected by the revenue but is not the account that is directly debited in this initial transaction.
