Final answer:
The correct answer is 4) An adjusting entry to credit service revenue by 2,000. The difference between the unadjusted and adjusted trial balances is due to the revenue earned but not recorded prior to the adjustments, hence the credit to increase service revenue.
Step-by-step explanation:
The correct answer is: 4) An adjusting entry to credit service revenue by 2,000 was prepared. This is because the unadjusted Trial Balance showed a 5,000 balance in service revenue, and the Adjusted Trial Balance showed a 7,000 balance. The difference of 2,000 represents additional revenue that was earned but not yet recorded until the adjusting entry was made. Adjusting entries are used to record transactions that have occurred but have not yet been recorded at the end of the accounting period.
For instance, if a company performed a service but hasn't billed the customer by the date of the trial balance, then the revenue would not be included in the unadjusted trial balance. An adjusting entry would be made to record this earned revenue, thus increasing the service revenue account. The adjusting journal entry to reflect this in the ledger would be a debit to an asset account such as Accounts Receivable and a credit to Service Revenue, not a debit to Service Revenue as options 1 and 2 suggest. Option 3 is not relevant since payments are not typically involved in adjusting entries for revenue recognition.