Understanding Accounts Receivable in Accounting Fundamentals

When a service has been performed but no cash has been received, what would be included in the entry?

• A. A debit to cash
• B. A credit to services revenue
• C. A debit to accounts receivable
• D. A credit to accounts payable

Answer: (C)

When a service has been performed but no cash has been received, the correct entry involves recording the revenue that has been earned even though payment has not yet been received. This concept is based on the accrual basis of accounting, which recognizes revenue when it is earned, not necessarily when cash is received. In this situation, the business has rendered a service, and as a result, it is entitled to collect payment in the future. To reflect this entitlement, an asset account called accounts receivable is debited. This shows that money is expected to be received from the customer in the future. By debiting accounts receivable, the company records the amount it is owed, while also crediting services revenue to recognize that income has been earned. This reflects an accurate financial position by acknowledging both the earned revenue and the corresponding claim against the customer. Other choices involve debiting cash, which does not apply since no cash has been received, or credits related to services revenue or accounts payable, both of which do not accurately reflect the transaction at hand.

When you're studying for the Accounting Fundamentals Certification, understanding how to handle accounts receivable is crucial. You see, accounting isn't just about numbers; it's about tracking value. It's like keeping tabs on promises: "I’ll pay you later," but ensuring you’ve got a record of that promise.

So, let’s tackle a common question you might encounter: When a service has been performed but no cash has been received, what’s the right entry? If you’re thinking A. A debit to cash, you might wanna hit the brakes. Cash hasn’t been received yet! The next option, B. A credit to services revenue, might seem tempting, but hold on— you don't recognize income until you've performed the service.

That brings us to C. A debit to accounts receivable. Right on the money! This is where we capture that promised future cash flow. Think of accounts receivable as an IOU. The service is done, so you've earned that revenue, and now you’re waiting for your customer to settle the bill.

Here’s the deal: the accrual basis of accounting doesn't wait for cash to show up at your door. It’s all about recognizing what you’ve earned right when you provide the service. If you've contributed your expertise, time, or resources, you've earned your keep. Your clients might not have opened their wallets just yet, but that doesn't mean your hard work won't pay off.

Now, when you debit accounts receivable, what are you actually doing? You're recording that you expect money in the future. This clear picture provides anyone looking at your financials—be it a manager, investor, or future employer—with a solid understanding of what you’re owed. By tangent, imagine someone buying a movie ticket without actually watching the film—they’ve got a claim to that cinema experience!

And don’t forget, you also credit services revenue at the same time. This dual action reflects both the service you’ve provided and the expectation of future cash. It’s like telling the world, “Hey, I’ve done my part. Now I just need my payment.” The other choices—credit to accounts payable or a debit to services revenue—wouldn’t accurately reflect what just happened either, so they don’t make the cut.

To sum it up, understanding how to record transactions, even when cash isn’t part of the equation, reinforces a foundational principle of accounting: revenue is recognized when it’s earned. By committing this to memory, you’ll not only ace your AFC certification but also build a solid ground for future accounting adventures. Remember, it's all about anticipating cash flow while reporting accurately on financial statements.