Final answer:
The correct entry for a company that receives payment in advance for services is to debit Cash and credit Unearned Service Revenue, reflecting an increase in assets and a liability for services to be performed.
Step-by-step explanation:
When a company receives money in advance of performing a service, the correct accounting entry to record the transaction is: debuts Cash and credits Unearned Service Revenue. The correct entry for a company that receives payment in advance for services is to debit Cash and credit Unearned Service Revenue, reflecting an increase in assets and a liability for services to be performed.
The cash account is debited because the company is receiving cash, which is an asset and hence, increases the company's assets. The unearned service revenue account is credited because it is a liability account that represents the money received for services that have not yet been performed, indicating an obligation to provide these services in the future. Once the service is performed, this liability will be reduced (debited) and the revenue will be recognized (credited).