Accounting Fundamentals Certification (AFC) Practice Test

When a service has been performed but no cash has been received, what would be included in the entry?

1. A debit to cash

2. A credit to services revenue

3. A debit to accounts receivable

4. A credit to accounts payable

The correct answer is: A debit to accounts receivable

When a service has been performed but no cash has been received, the correct entry involves recording the revenue that has been earned even though payment has not yet been received. This concept is based on the accrual basis of accounting, which recognizes revenue when it is earned, not necessarily when cash is received. In this situation, the business has rendered a service, and as a result, it is entitled to collect payment in the future. To reflect this entitlement, an asset account called accounts receivable is debited. This shows that money is expected to be received from the customer in the future. By debiting accounts receivable, the company records the amount it is owed, while also crediting services revenue to recognize that income has been earned. This reflects an accurate financial position by acknowledging both the earned revenue and the corresponding claim against the customer. Other choices involve debiting cash, which does not apply since no cash has been received, or credits related to services revenue or accounts payable, both of which do not accurately reflect the transaction at hand.