An adjusting entry for accrued service revenue of $900 at year-end should record

An adjusting entry for accrued service revenue of $900 at year-end should record

• A. Debit Service Revenue 900; Credit Accounts Receivable 900
• B. Debit Cash 900; Credit Service Revenue 900
• C. Debit Accounts Receivable 900; Credit Service Revenue 900
• D. Debit Service Revenue 900; Credit Accounts Receivable 900

Answer: (C)

Accrued revenue occurs when the service has been performed and revenue is earned, but cash hasn’t been received and the customer hasn’t been billed yet. The adjusting entry needs to reflect both the asset that represents what customers owe and the revenue earned in the period. Debiting Accounts Receivable increases that asset, and crediting Service Revenue increases the revenue recognized for that period. So, for 900, you would debit Accounts Receivable and credit Service Revenue. This aligns with the accrual basis and the matching principle. Debiting Service Revenue would incorrectly decrease revenue and would not create a receivable; debiting Cash would imply cash was received; and reversing the accounts would misstate both assets and revenue.

Accrued revenue occurs when the service has been performed and revenue is earned, but cash hasn’t been received and the customer hasn’t been billed yet. The adjusting entry needs to reflect both the asset that represents what customers owe and the revenue earned in the period. Debiting Accounts Receivable increases that asset, and crediting Service Revenue increases the revenue recognized for that period. So, for 900, you would debit Accounts Receivable and credit Service Revenue.

This aligns with the accrual basis and the matching principle. Debiting Service Revenue would incorrectly decrease revenue and would not create a receivable; debiting Cash would imply cash was received; and reversing the accounts would misstate both assets and revenue.