Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

When a company performs $10,000 of services and issues an invoice to the customer, which of the following is the correct journal entry?

Debit Service Revenue $10,000; Credit Accounts Receivable $10,000

Debit Service Revenue $10,000; Credit Cash $10,000

Debit Accounts Receivable $10,000; Credit Service Revenue $10,000

Debit Cash $10,000; Credit Service Revenue $10,000

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Verified step by step guidance

Understand the nature of the transaction: The company has performed services worth $10,000 and issued an invoice to the customer. This means the company has earned revenue but has not yet received cash. Instead, the customer owes the company money, which is recorded as Accounts Receivable.

Identify the accounts involved: The two accounts affected are 'Accounts Receivable' (an asset account) and 'Service Revenue' (a revenue account).

Determine the impact on each account: Since the company is owed money, 'Accounts Receivable' increases, which requires a debit entry. 'Service Revenue' increases because the company has earned revenue, which requires a credit entry.

Apply the journal entry rules: Debits increase asset accounts, and credits increase revenue accounts. Therefore, the correct journal entry is to debit 'Accounts Receivable' for $10,000 and credit 'Service Revenue' for $10,000.

Verify the journal entry: Ensure that the total debits equal the total credits. In this case, both the debit and credit amounts are $10,000, so the journal entry is balanced and correct.