Question

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 accounts receivable 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 cash for $4,000 and credit service revenue for $4,000.
d. debit accounts payable for $4,000 and credit service revenue for $4,000.

Explanation:

When a business provides services and bills a client who will pay later, it creates an accounts - receivable (an asset representing the amount owed by the client). Revenue is recognized when the service is provided. Debiting Accounts Receivable increases the asset, and crediting Service Revenue records the earned revenue. Cash is not received immediately, so options with cash debits are incorrect. Accounts Payable is for amounts the business owes, not amounts owed to the business.

Answer:

A. Debit Accounts Receivable for $4,000 and credit Service Revenue for $4,000