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

• A. Debit Service Revenue \$10,000; Credit Accounts Receivable \$10,000
• B. Debit Service Revenue \$10,000; Credit Cash \$10,000
• C. Debit Accounts Receivable \$10,000; Credit Service Revenue \$10,000
• D. Debit Cash \$10,000; Credit Service Revenue \$10,000

Answer: (C)

Verified step by step guidance

1. 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.
2. Identify the accounts involved: The two accounts affected are 'Accounts Receivable' (an asset account) and 'Service Revenue' (a revenue account).
3. 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.
4. 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.
5. 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.