On May 1,a business provided legal services to a client and billed the client $4,000.The client promised to pay the business in one month.Which journal entry should the business record on May 1?
A)Debit Cash for $4,000 and credit Service Revenue for $4,000.
B)Debit Cash for $4,000 and credit Retained Earnings for $4,000.
C)Debit Accounts Receivable for $4,000 and credit Service Revenue for $4,000.
D)Debit Accounts Payable for $4,000 and credit Service Revenue for $4,000.

Question

Quizplus · Accepted Answer

The business provided legal services to the client and billed them for $4,000. This means the business has earned the revenue, but since the client has not yet paid, the business records it as Account Receivable (an asset). Therefore, the correct journal entry would be to debit Account Receivable for $4,000 and credit Service Revenue for $4,000. Option A is incorrect because cash has not been received yet. Option B is incorrect because there is no justification for crediting Retained Earnings. Option D is incorrect as it assumes that the business owes the amount to a creditor, which is not the case.

On May 1,a Business Provided Legal Services to a Client