If a business owner performs a service but is not paid immediately, what should they enter the transaction as in their accounting software?

When a business owner performs a service but does not receive payment immediately, the appropriate accounting action is to create an invoice. An invoice serves as a formal request for payment and indicates that a service has been rendered and that payment is expected at a later date. This method accurately reflects the revenue earned by the business even though the cash has not yet been received.

By entering this transaction as an invoice, the business records the revenue in its accounts and also tracks the amount owed by the customer. This helps provide clear billing records and ensures that the business can follow up on outstanding payments.

Choosing a sales receipt would not be appropriate in this case because sales receipts are used when payment is received at the time of the sale. Recording merely a payment would not capture the initial transaction of service provided and would fail to account for accounts receivable. A journal entry might be used for various adjustments and entries in accounting, but it would not properly document the service rendered or the expectation of future payment in such a straightforward manner. Thus, using an invoice correctly captures the transaction and aids in the overall financial management of the business.