Final answer:
The correct entry for a company that has performed a service but has not yet received payment is to debit Accounts Receivable and credit Service Revenue, following the accrual basis of accounting.
Step-by-step explanation:
When a company renders a service but has not yet received payment, the appropriate accounting entry follows the principles of accrual accounting. In this scenario, the accounting entry involves debiting the Accounts Receivable account and crediting the Service Revenue account. This entry reflects the company's acknowledgment that it has provided a service, establishing the right to receive payment from the customer.
The debit to Accounts Receivable increases the asset side of the balance sheet, indicating the amount the company expects to receive in the future. Accounts Receivable represents the company's outstanding receivables from customers for goods or services provided on credit. By recognizing this, the company is reflecting its economic interest in a future cash flow.
On the other side of the entry, the credit to the Service Revenue account adheres to the accrual accounting principle. According to this principle, revenue should be recognized when it is earned, irrespective of when the cash payment is received. In this case, the company has fulfilled its obligation by providing a service, and thus, revenue is recognized immediately. This credit entry to Service Revenue reflects the increase in the company's earned revenue, contributing to the income statement.
In summary, the debit to Accounts Receivable recognizes the company's claim to future payment, while the credit to Service Revenue aligns with the accrual accounting principle, recognizing revenue when the service is provided, even if payment is yet to be received. This accounting treatment ensures accurate financial reporting by reflecting both the asset and revenue aspects of the transaction.