When will Accounts Receivable be involved in an adjusting entry related to accrued revenues?

• A. When expenses have been incurred but not yet paid.
• B. When revenue has been earned but not yet billed or received by the end of the period.
• C. When inventory is purchased on account.
• D. When cash has been received in advance for services to be performed in the future.

Answer: (B)

Verified step by step guidance

1. Understand the concept of accrued revenues: Accrued revenues occur when a company has earned revenue but has not yet billed or received payment for it by the end of the accounting period.
2. Identify the role of Accounts Receivable: Accounts Receivable is involved in adjusting entries for accrued revenues because it represents the amount owed to the company for services or goods provided but not yet paid for.
3. Determine the timing of the adjusting entry: Adjusting entries for accrued revenues are made at the end of the accounting period to ensure that revenue earned is recorded in the correct period, even if payment has not been received.
4. Record the adjusting entry: The adjusting entry typically involves debiting Accounts Receivable to recognize the amount owed and crediting Revenue to reflect the earned income.
5. Review the impact on financial statements: This adjustment ensures that the income statement accurately reflects the revenue earned during the period and the balance sheet includes the receivable as an asset.