Under the revenue recognition principle, revenue is recognized when performance is achieved and collection is reasonably assured. Which journal entry records services performed but not yet billed?

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

Answer: (D)

When services have been performed but haven’t been billed yet, revenue is still earned and a receivable is created because the customer owes us for the work done. The proper entry reflects both the earned revenue and the asset representing the right to collect the payment: Debit Accounts Receivable and Credit Service Revenue. The Accounts Receivable increases because we expect to collect from the customer, and Service Revenue increases (a credit) because the service has been performed and revenue is earned.

The other typical entries don’t fit this situation. Debiting Revenue would reduce revenue, which isn’t correct since revenue is earned and should increase on the credit side. Debiting Cash would imply cash has been received, which hasn’t happened yet. Debiting Unearned Revenue would be used only if cash had been received in advance and we were moving a liability to revenue, which isn’t the case here.