XYZ heating and A/C, Inc., completed a heating repair job on December 30 for $2,500. An invoice was sent, and the bill is due within 30 days of the invoice date. What entry should be made before a financial statement is prepared on December 31?
No entry needs to be made on December 31 as the job was completed on December 30 and no payment has been received yet. The $2,500 should be recorded as accounts receivable on the balance sheet as of December 31.
Before preparing the financial statement on December 31, an adjusting entry should be made to record the revenue earned for the heating repair job. Since the job was completed on December 30, but the invoice was sent and is due within 30 days, the adjusting entry should be made to recognize the revenue for the work done in December.
The entry would be as follows:
1. Debit Accounts Receivable: $2,500
2. Credit Service Revenue: $2,500
This entry recognizes the amount billed to the customer as an account receivable and records the revenue earned for the heating repair job.
The adjusting entry ensures that the financial statements for the period reflect the revenue earned in December, even though the payment has not been received yet.