A company performs $10,000 of services and issues an invoice to the customer. Using the accrual method, what’s the correct entry to record the transaction? m Debit cash $10,000, credit sales revenue $10,000 Debit services expense $10,000, credit sales revenue $10,000 Debit unearned revenue $10,000, credit sales revenue $10,000 Debit accounts payable $10,000, credit sales revenue $10,000 Debit accounts receivable $10,000, credit sales revenue $10,000 s won’t interrupt your assessment ? MacBook Pro Search or type URL
The Correct Answer and Explanation is :
Under the accrual method of accounting, revenue is recognized when it is earned, regardless of when cash is received. In this scenario, the company has performed $10,000 worth of services and issued an invoice to the customer. The correct journal entry to record this transaction is:
- Debit Accounts Receivable $10,000: This entry increases the accounts receivable, an asset account, indicating that the company is owed $10,000 by the customer.
- Credit Sales Revenue $10,000: This entry increases the sales revenue, a revenue account, recognizing that the company has earned $10,000 from providing the services.
This journal entry reflects that the company has earned revenue and has a right to receive payment in the future. The accounts receivable will remain on the balance sheet until the customer pays the invoice.
The other options are incorrect for the following reasons:
- Debit Cash $10,000, Credit Sales Revenue $10,000: This entry would be used if the company had received the cash at the same time the services were performed. However, since an invoice was issued, not cash, this is incorrect.
- Debit Services Expense $10,000, Credit Sales Revenue $10,000: This entry incorrectly debits an expense account (Services Expense) instead of an asset account. Expenses should reflect costs incurred, not revenue earned.
- Debit Unearned Revenue $10,000, Credit Sales Revenue $10,000: Unearned revenue represents money received before services are performed. In this scenario, the services have been performed, so unearned revenue is not applicable.
- Debit Accounts Payable $10,000, Credit Sales Revenue $10,000: Accounts payable represents amounts the company owes to suppliers or creditors, not amounts owed by customers. This entry does not reflect the nature of the transaction.
Therefore, the correct journal entry is to debit accounts receivable and credit sales revenue for $10,000 each. citeturn0search0