What is the effect of submitting an invoice to a customer?

Submitting an invoice to a customer primarily results in two significant accounting effects: an increase in accounts receivable and an increase in revenue. When a business issues an invoice, it recognizes that it has delivered goods or provided services, thereby earning revenue, which is reflected in the income statement. At the same time, the business expects to receive payment from the customer in the future, increasing accounts receivable on the balance sheet.

The increase in accounts receivable signifies that the company has a claim to cash that it will collect later, which is a key part of managing cash flow. The inclusion of both the increase in revenue and accounts receivable in this transaction accurately reflects the accrual accounting principle, where revenue is recognized when it is earned, rather than when cash is received.

In contrast, options that suggest a decrease in accounts payable or cash decrease misinterpret the nature of the transaction. Accounts payable pertains to obligations the business owes to suppliers, not its customers, and cash does not decrease as a direct result of submitting an invoice. The fundamental accounting entries when an invoice is submitted highlight why the increase in accounts receivable and revenue is the correct response.