Multiple Choice
Wang Company has earned \$2,000 in service revenue at year-end that has not yet been billed or recorded. Which adjusting entry should Wang Company make to recognize this accrued revenue?
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3. Accrual Accounting Concepts
Adjusting Entries: Accrued Revenues
Multiple Choice
Which of the following is the correct adjusting entry to record an accrued revenue at the end of an accounting period?
A
Debit Cash; Credit Revenue
B
Debit Revenue; Credit Accounts Receivable
C
Debit Revenue; Credit Cash
D
Debit Accounts Receivable; Credit Revenue
Verified step by step guidance1
Understand the concept of accrued revenue: Accrued revenue refers to income earned but not yet received in cash or recorded during the accounting period. It requires an adjusting entry to ensure the revenue is recognized in the correct period.
Identify the accounts involved: Accrued revenue typically involves Accounts Receivable (an asset account) and Revenue (a revenue account). Accounts Receivable represents the amount owed by customers, while Revenue reflects the income earned.
Determine the impact on the accounts: Since the revenue has been earned but not yet received, Accounts Receivable should be increased (debited) to reflect the amount owed by customers, and Revenue should be increased (credited) to recognize the income earned.
Write the adjusting entry: The adjusting entry to record accrued revenue is 'Debit Accounts Receivable; Credit Revenue.' This ensures the financial statements accurately reflect the earned revenue and the receivable amount.
Review the options provided: Compare the adjusting entry 'Debit Accounts Receivable; Credit Revenue' with the options listed in the problem. Confirm that this matches the correct answer provided in the question.
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