17 Questions
What are the four criteria that must be met to recognize revenue?
Persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, fees are fixed or determinable, and collectibility is reasonably assured
Which account would be debited when a company provides consulting services to a client and receives $1,000 cash?
Cash
Where is service revenue reported on the financial statements?
Income Statement (Statement of Comprehensive Income)
What is the effect of debiting Accounts Receivable and crediting Service Revenue?
Increase Assets and Increase Equity
What is the purpose of the initial entry when a company provides consulting services to a client but has not yet received payment?
To recognize revenue when services are rendered
What is the subsequent entry when a company receives payment from a client for services previously rendered?
Debit Cash, Credit Accounts Receivable
What is the total amount of cash collected during the period?
P35, 000
What is the effect on assets when Ricca invested equipment in the business?
Increase
What is the ending balance of cash?
P79, 500
What is the amount paid to the supplier?
P10, 000
What is the amount invested by Maria in the bakeshop in Baguio City?
P500, 000
Which account records purchases on credit or payable due to suppliers?
Accounts Payable
What is the characteristic of nominal accounts?
They include assets, liabilities, and equity accounts
What is the effect of a debit entry on the cash account?
Increase in cash account
What is the purpose of a sales journal?
To record sales of merchandise on account
What is the effect of a trial balance on errors in the accounting system?
It reveals errors in the accounting system
What is the effect of a purchase of equipment in cash on total assets?
Increase in total assets
Study Notes
Service Revenue
Revenue Recognition
- Service revenue is recognized when earned, regardless of when payment is received
- Four criteria must be met to recognize revenue:
- Persuasive evidence of an arrangement exists
- Delivery has occurred or services have been rendered
- Fees are fixed or determinable
- Collectibility is reasonably assured
Journal Entries
- Debit: Cash (or Accounts Receivable) for the amount received
- Credit: Service Revenue for the amount earned
- Example: Provided consulting services to a client and received $1,000 cash
- Debit: Cash, $1,000
- Credit: Service Revenue, $1,000
Financial Reporting
- Service revenue is reported on the Income Statement (Statement of Comprehensive Income)
- Classified as operating revenue
- Presented separately from non-operating revenues
Debits and Credits
- Debits:
- Increase Assets (e.g., Cash, Accounts Receivable)
- Increase Expenses
- Decrease Liabilities
- Decrease Equity
- Credits:
- Increase Liabilities
- Increase Equity
- Decrease Assets
- Decrease Expenses
Accounting Entries
- Initial Entry: Debit Accounts Receivable, Credit Service Revenue (for services rendered but not yet received)
- Subsequent Entry: Debit Cash, Credit Accounts Receivable (when payment is received)
- Example:
- Initial Entry: Debit Accounts Receivable, $1,000; Credit Service Revenue, $1,000
- Subsequent Entry: Debit Cash, $1,000; Credit Accounts Receivable, $1,000
Test your understanding of service revenue recognition, journal entries, financial reporting, and debits and credits in accounting. Learn how to recognize and record service revenue correctly.
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