When a service company performs services for a customer on account, it does not involve immediate cash payment. Instead, it creates an account receivable, which reflects the amount that the customer owes the company. Therefore, the correct journal entry for this transaction would be:
- Debit Accounts Receivable for $7,000
- Credit Service Revenue for $7,000
This entry debits Accounts Receivable because the company expects to receive that amount from the customer in the future. At the same time, it credits Service Revenue, which increases the company’s revenue, reflecting the services that have been provided.
To summarize, the correct answer is:
- Debits Accounts Receivable for $7,000 and credits Service Revenue for $7,000.