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In late August, a company provided one of its customers with services worth $500; however, the company does not expect payment from the customer for those services until early September. What adjustment should the company make in August to denote this delivery of services?
A : The company should decrease both Accounts Receivable and Service Revenue for $500.
B : The company should decrease Accounts Receivable for $500 and increase Service Revenue for $500.
C : The company should increase both Accounts Receivable and Service Revenue for $500.
D : The company should increase Accounts Receivable for $500 and decrease Service Revenue for $500.

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Answer:

The answer is: C) The company should increase both Accounts Receivable and Service Revenue for $500.

Explanation:

When you want to record an entry for a sale on account (the sale was made on August and should be paid in September), you must debit Accounts Receivable and credit Service Revenue.

  • When assets increase (accounts receivable), then you should entry a debit.
  • When revenue increases (service revenue), then you should entry a credit.