If Services Are Rendered On Account Then?

If Services Are Rendered On Account / For Credit  Then

If services are rendered on account or credit, then Accounts Receivable Account will increase and Sales Revenue will also increase as a direct income or revenue. The effect of this Transaction on Accounting Equation is that owners' equity is increased due to operating or profitable activities of the owners of the business i.e., increase in sales revenue will increase Net Income which ultimately will also increase owners’ equity account. On the other hand, the asset side of the accounting equation is also increased i.e, increase in accounts receivable as a current asset will ultimately increase assets on the accounting equation.

As the company rendered or performed the services on account, so it earned the revenue but still the payment against these services are not received. So we consider it as a current asset for the company i.e., receivables from customers.

For example, if a consulting company provides consulting service on account to its client, Mr. A, for Rs. 3000, then following journal entry is recorded as shown below:

                                                      Accounts Receivable a/c  3000

 

                                                                                                 Sales a/c  3000

                                         (Consulting Services Rendered on Account)

If Services Are Rendered On Account / Credit Accounting Equation

The effect of this transaction on accounting equation is shown below:

                                             Assets               =          Liabilities + Owners’ Equity

                                                     +                                                                     +

                                       Accounts Receivable  =               -------       +         Sales

                                                  3000                   =               -------       +         3000

 

So, the asset is increased by Rs. 3000 and owners’ equity is also increased by Rs. 3000.