If Services Are Rendered For Cash Or Bank, Then What?

If Services Are Sold Out For Cash Or Bank Then What Is The Journal Entry And Its Effect On Accounting Equation?

When services are rendered, performed or sold for cash or bank i.e., payment is received by cheque or check, then we debit cash or bank account and credit sales account as cash or cash received by check / cheque (bank) is coming into the business, so there is an increase in cash or bank account being a Current Asset which ultimately affects assets side of the accounting equation. Sales is also increasing as services are receiving by the clients from the business and as sales is the results of operating activities or profitable activities of the owner of the business, so it positively affects owner’s equity on the right side of the accounting equation.

The journal entry for services rendered for cash / bank is shown below:

                                                                     Cash a/c / Bank a/c  XXX

 

                                                                                                           Sales a/c  XXX

 

                                                                             (Services Performed For Cash / Bank)

 

The Effect Of Services Rendered / Performed For Cash / Bank On The Accounting Equation

Note: The effect of services rendered for cash is the same as in case of the services rendered for bank. The only difference is that we replace cash with bank account when the payment is received from clients by cheque / check.

Example, Suppose, Mr. A is a Sole Proprietor, doing his hair cutting business received cash of Rs. 100 from client, Mr. B for rendering hair cutting services. Then what is the effect of such business transaction on the accounting equation?

We have the following journal entry for this transaction:

                                                                                          Cash a/c  100

 

                                                                                                                Sales a/c  100

 

                                                                                           (Services Sold For Cash)

 

                                                   Assets   =   Liabilities   +   Owner’s Equity

                                                   +Cash    =          0           +         (+Sales)

                                                   +100      =          0           +           +100

                                                     100      =          0           +             100

 

So, we see that cash is increased by Rs. 100 on the left side or assets side of the accounting equation while the right side of the accounting equation is also increased by Rs. 100 due to an increase in sales of Rs. 100. Hence, the accounting equation remains equal on both sides.