How are accrued revenues recorded and what adjusting entry is used?

• A. Debit Accounts Receivable; Credit Revenue.
• B. Debit Revenue; Credit Accounts Receivable.
• C. Debit Cash; Credit Revenue.
• D. Debit Revenue; Credit Cash.

Answer: (A)

Accrued revenues happen when you’ve earned revenue by delivering goods or performing a service, but you haven’t yet received cash. The adjusting entry used reflects that you’ve earned the revenue and that you have a claim to receivable cash later. So you debit Accounts Receivable to show the asset you’ll collect, and you credit Revenue to recognize the income in the period it was earned. This follows the revenue recognition principle and the accrual basis of accounting, which match revenues to the period in which they are earned and record receivables for future cash collection.

If you were to debit Revenue or debit Cash, you’d be misrepresenting the timing or nature of the transaction. Revenue should be increased with a credit, not a debit, and cash hasn’t yet been received in accrued revenue cases. If you credited Cash, that would imply cash was received when it wasn’t.