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?

• A. Debit Cash \$2,000; Credit Service Revenue \$2,000
• B. Debit Service Revenue \$2,000; Credit Accounts Receivable \$2,000
• C. Debit Accounts Receivable \$2,000; Credit Service Revenue \$2,000
• D. Debit Service Revenue \$2,000; Credit Cash \$2,000

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of accrued revenue. Accrued revenue refers to income earned but not yet billed or recorded in the accounting system. It is recognized as revenue in the current period even though cash has not been received.
2. Step 2: Identify the accounts involved. Since Wang Company has earned service revenue but has not yet billed or received payment, the accounts affected are 'Accounts Receivable' (an asset account) and 'Service Revenue' (a revenue account).
3. Step 3: Determine the correct adjusting entry. To record accrued revenue, you need to increase (debit) 'Accounts Receivable' to reflect the amount owed to the company and increase (credit) 'Service Revenue' to recognize the revenue earned.
4. Step 4: Write the journal entry. The adjusting entry will be: Debit Accounts Receivable \$2,000; Credit Service Revenue \$2,000. This ensures that the revenue is recognized in the correct accounting period and the receivable is recorded as an asset.
5. Step 5: Verify the impact of the entry. Debiting 'Accounts Receivable' increases assets, while crediting 'Service Revenue' increases equity through revenue recognition. This aligns with the accrual basis of accounting, which records revenues when earned, regardless of cash receipt.