Which describes the effect of an adjusting entry for accrued revenue?

• A. Increases cash and decreases revenue
• B. Increases assets and increases revenue
• C. Increases expenses and increases cash
• D. Decreases liabilities and increases revenue

Answer: (B)

Accrued revenue happens when you’ve earned revenue but haven’t billed or collected cash yet. To record this, you recognize the amount as revenue and also show the money owed by the customer as an asset. The adjusting entry would debit Accounts Receivable (an asset) and credit Revenue (increasing income). This makes sense because you’ve earned the revenue and expect to collect it later, so assets go up and revenue goes up now, while cash remains unchanged until payment is received. The other options don’t fit because they either involve cash being received, or they affect expenses or liabilities instead of recognizing earned revenue as an asset plus revenue.