A company receives payment from one of its customers on August 5 for services performed on July 21. Which of the following entries would be recorded if the company uses accrual basis accounting?
A) $$\begin{array} { | c | r | r | }
\hline \text { Cash } & 1,000 & \
\hline \text { Accounts Receivable } & & 1,000 \
\hline
\end{array}$$
B) $$\begin{array} { | c | r | r | }
\hline \text { Accounts Payable } & 1,000 & \
\hline \text { Cash } & & 1,000 \
\hline
\end{array}$$
C) $$\begin{array} { | c | r | r | }
\hline \text { Cash } & 1,000 & \
\hline \text { Service Revenue } & & 1,000 \
\hline
\end{array}$$
D) $$\begin{array} { | c | r | r | }
\hline \text { Service Revenue } & 1,000 & \
\hline \text { Cash } & & 1,000 \
\hline
\end{array}$$

Question

A company receives payment from one of its customers on August 5 for services performed on July 21. Which of the following entries would be recorded if the company uses accrual basis accounting?
A) $$\begin{array} { | c | r | r | } 
\hline \text { Cash } & 1,000 & \
\hline \text { Accounts Receivable } & & 1,000 \
\hline
\end{array}$$
B) $$\begin{array} { | c | r | r | } 
\hline \text { Accounts Payable } & 1,000 & \
\hline \text { Cash } & & 1,000 \
\hline
\end{array}$$
C) $$\begin{array} { | c | r | r | } 
\hline \text { Cash } & 1,000 & \
\hline \text { Service Revenue } & & 1,000 \
\hline
\end{array}$$
D) $$\begin{array} { | c | r | r | } 
\hline \text { Service Revenue } & 1,000 & \
\hline \text { Cash } & & 1,000 \
\hline
\end{array}$$

Quizplus · Accepted Answer

Under accrual basis accounting, revenue is recognized when earned, not when cash is received. The service was performed on July 21, so the company would recognize the revenue then and record an accounts receivable. When the cash is received on August 5, the entry is to debit Cash and credit Accounts Receivable, reflecting the receipt of cash and the reduction of the outstanding receivable.

A Company Receives Payment from One of Its Customers on August