A business consultant performs accounting services for a client on 30 June 20X1 and bills/invoices the client $350, to be paid within 60 days. Payment is received on 15 August 20X1. Accrual accounting is used by both parties. What is the journal entry made by the consultant on 30 June 20X1?

Question

BlackTom AI · Accepted Answer

Accrual accounting recognizes revenue when it is earned, not when cash is received. Therefore, on 30 June 20X1 (the date services were performed and billed), the consultant must record the revenue earned and the right to receive cash (an asset).

1) Relevant knowledge points and concepts
- Accrual basis: revenue recorded when earned; expenses when incurred.
- Accounts receivable: an asset created when a business has performed services but has not yet received cash.
- Service revenue: income account increased (credited) when services are provided.

2) Step-by-step reasoning
- Service performed on 30 June → revenue is earned that day ($350).
- The client has been billed and will pay within 60 days → the consultant has a claim to cash, so record Accounts Receivable for $350.
- Because revenue is earned, record Service Revenue for $350.

3) Calculations / journal amounts
- Amount = $350
- Debit Accounts Receivable $350 (increase asset)
- Credit Service Revenue $350 (increase revenue; increases equity via retained earnings)

Journal entry on 30 June 20X1:
Dr Accounts Receivable $350
Cr Service Revenue $350

4) Why this answer is correct
This entry reflects the accrual principle: revenue recognized when services are provided and an asset (receivable) created because cash has not yet been received. It correctly records the economic event at the reporting date.

5) Why the other options are incorrect
- a. “none of the answers provided”: incorrect because the correct entry is listed among options.
- c. Dr Accounts receivable Cr Cash: wrong because cash was not received on 30 June; crediting Cash would falsely reduce cash.
- d. Dr Service revenue Cr Accounts payable: wrong because it debits revenue (reducing it) and credits a liability; the correct result is to credit revenue and debit an asset.

6) Conclusion
The correct journal entry is Dr Accounts receivable Cr Service revenue, which matches the provided answer.

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