Multiple Choice
In an adjusting entry for accrued revenues (services provided but not yet billed or collected), which balance sheet account is increased?
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3. Accrual Accounting Concepts
Adjusting Entries: Accrued Revenues
Multiple Choice
Which of the following best describes accrued revenue?
A
Revenue that is recognized after all related expenses have been paid.
B
Revenue that is recorded only when cash is received.
C
Revenue that has been earned but not yet received in cash or recorded at the end of the accounting period.
D
Revenue that has been received in cash but not yet earned.
Verified step by step guidance1
Understand the concept of accrued revenue: Accrued revenue refers to revenue that has been earned by providing goods or services but has not yet been received in cash or recorded in the accounting books by the end of the accounting period.
Eliminate incorrect options: Review each option and compare it to the definition of accrued revenue. For example, 'Revenue that is recognized after all related expenses have been paid' is incorrect because accrued revenue is not dependent on the payment of expenses.
Analyze the second option: 'Revenue that is recorded only when cash is received' describes cash-basis accounting, not accrued revenue, which is recognized under accrual accounting principles.
Evaluate the fourth option: 'Revenue that has been received in cash but not yet earned' describes unearned revenue, not accrued revenue. Unearned revenue is a liability until the service or product is delivered.
Select the correct option: The correct description of accrued revenue is 'Revenue that has been earned but not yet received in cash or recorded at the end of the accounting period.' This aligns with the accrual accounting principle of recognizing revenue when it is earned, regardless of cash receipt.
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