Final answer:
The question deals with an unrecorded revenue transaction for services provided by m&r company in December, recognized using accrual accounting. The company must make an adjusting entry to record this revenue by debiting Accounts Receivable and crediting Service Revenue. Payment in January will be recorded without impacting income further since the revenue was recognized in December.
Step-by-step explanation:
Understanding Accrual Accounting:
The student's question pertains to an unrecorded revenue transaction for m&r company. In accrual accounting, revenues are recognized when they are earned, regardless of when the payment is received. Given that the services were rendered in December, the company should recognize the revenue in December itself, even though the payment is expected in January. This is achieved through an adjusting entry to be made at the end of December.
Adjusting Journal Entry Example:
-
- Debit Accounts Receivable $2,000
-
- Credit Service Revenue $2,000
This adjusting entry effectively records the revenue earned in December and expects the future cash inflow. By following this practice, m&r company ensures that its financial statements reflect the true financial activity of that time period. Once the customers pay in January, the transaction will involve a debit to cash and a credit to accounts receivable, reflecting the inflow of cash without affecting the company's income statement any further since the revenue was already recognized in December.