Question

Which statement is true for accrued revenue adjusting entries?

• A : The adjusting entry results in an increase (a debit) to a revenue account and a decrease (a credit) to an asset account.

• B : Prior to adjustment, assets and revenues are both overstated.

• C : None of choices is correct.

• D : The adjusting entry will increase both an asset account and a revenue account.

Answer 1

Answer: D. The adjusting entry will increase both an asset account and a revenue account.

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When revenue is accrued / earned, an amount of revenue becomes receivable from the customer.

So, we need to increase account reveivable balance and revenue account balance.

The normal balance of the account receivable account is a debit balance.

The normal balance of the the revenue account is a credit balance.

So, to increase the balance in account receivable account, the account receivable account (an asset account) is debited.

So, to increase the balance in revenue account balance, the revenue account is credited.

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The adjusting entry is as follows:

Account Title and Explanation	Debit	Credit
Accounts receivable	XXX
Revenue		XXX
(To record accrued revenue)

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