Question

Providing services to customers on account would be recorded with a:

1) Debit to Accounts Payable and Credit to Cash
2) Debit to Accounts Receivable and Credit to Cash
3) Debit to Cash and Credit to Accounts Payable
4) Debit to Cash and Credit to Accounts Receivable

Answer 1

The correct accounting entry for providing services to customers on account is a Debit to Accounts Receivable and a Credit to Service Revenue, reflecting the business earning revenue and the customer owing money for the services provided.

Step-by-step explanation:

When a business provides services to customers on account, the correct way to record this transaction is to use the double-entry accounting system. Specifically, you will Debit to Accounts Receivable and Credit to Service Revenue (or Sales). What this does is it increases the Accounts Receivable, representing money that is owed to the business by the customers, and it also increases the revenue, reflecting the income generated from providing services. Note that there is no cash involved in this transaction at the moment as the service is provided on account, which means the customer will pay later. Thus, option 2) Debit to Accounts Receivable and Credit to Cash is incorrect because cash was not actually received, whereas the correct choice would be something like 2) Debit to Accounts Receivable and Credit to Service Revenue.