A web design company completes a website project worth $3,000 for a client on December 1st. The client agrees to pay the amount within 1 month.
Which pair of T accounts correctly shows how to record revenue earned but not yet received?
Revenue
Accounts Receivable
Debits Credits Debits Credits
$3,000 $3,000
Cash
Revenue
Debits Credits
$3,000
Accounts Receivable
Cash
Revenue
Accounts Receivable
Debits Credits Debits Credits
$3,000 $3,000
Answer (2)
The correct T-accounts for recording revenue earned but not yet received are to debit Accounts Receivable by $3,000 and credit Revenue by $3,000. This reflects that the company has earned income but is awaiting payment from the client. These entries ensure accurate financial reporting of both the revenue earned and the asset expected from the client.
;
Recognize revenue earned but not yet received is recorded as Accounts Receivable (an asset) and Revenue.
Accounts Receivable increases, so debit Accounts Receivable by $3,000.
Revenue increases, so credit Revenue by $3,000.
The correct T-accounts show a debit to Accounts Receivable and a credit to Revenue: Accounts Receivable .
Explanation
Understanding the Problem The problem describes a scenario where a web design company has earned revenue but hasn't yet received the cash payment. This is a common situation in business, and it's important to understand how to record it correctly in accounting. We need to identify the correct T-accounts that reflect this transaction.
Accounts Receivable When a company earns revenue but hasn't received payment, it creates an 'Accounts Receivable'. This represents the amount of money owed to the company by its client. Since the company has a claim to this money, Accounts Receivable is an asset. Assets increase with a debit entry. Therefore, we need to debit Accounts Receivable by $3,000.
Revenue The revenue earned needs to be recorded as well. Revenue is an increase in equity. Equity increases with a credit entry. Therefore, we need to credit Revenue by $3,000.
Conclusion Based on the above analysis, the correct T-accounts should show a debit of $3,000 to Accounts Receivable and a credit of $3,000 to Revenue.
Examples
Imagine you're running a small tutoring business. You tutor a student for $200, but they'll pay you next week. You've earned the money (revenue), but you don't have the cash yet. You record this as Accounts Receivable (what the student owes you) and Revenue (what you've earned). This helps you track how much money is coming in, even if it's not in your bank account yet. This is important for managing your business finances and making sure you get paid for your services.
