When services are provided on account, which accounts are affected?

• A. Revenue increases and Accounts Receivable increases
• B. Cash increases
• C. Accounts Receivable decreases and Revenue increases
• D. Cash decreases and Revenue decreases

Answer: (C)

When services are provided on account, you’ve earned the revenue now but will collect payment later. This creates an asset because customers owe you money, so Accounts Receivable increases. Revenue also increases because the service has been performed and earned. The typical journal entry is a debit to Accounts Receivable and a credit to Revenue. Cash isn’t affected yet, since nothing has been paid at the time of delivery; cash would increase only when the customer pays and Accounts Receivable would decrease then. The idea that Accounts Receivable would decrease or that Cash would increase at this moment doesn’t fit a sale made on credit.