When a business owner performs a service and receives payment at that time, how should this transaction be entered in accounting software?

When a business owner performs a service and receives payment immediately, the transaction should be recorded as a sales receipt. This type of entry is appropriate because it directly reflects the cash flow resulting from the service rendered at that moment. A sales receipt documents both the sale and the payment simultaneously, conveying both the income generated and the cash received in that transaction.

This method of recording is straightforward and aligns with the principles of cash basis accounting, where income is recognized when cash is received. By using a sales receipt, the accounting software efficiently updates both the revenue accounts and the cash accounts, ensuring financial statements accurately reflect the current financial position of the business.

In contrast, a sales invoice is typically used for transactions where payment is expected at a later date, signifying credit sales rather than immediate cash transactions. A credit memo applies to adjustments made to existing invoices, typically reducing revenue due to returns or discounts, which does not apply in this scenario where payment is received immediately. Recording a payment received specifically pertains to payments made against invoices rather than capturing the initial sale itself. Thus, the sales receipt is the most appropriate choice for documenting immediate payment for services rendered.