Which Two Types Of Accounts Are Affected When Services Are Sold On Account / Credit

What Two Accounts Are Affected When Services Are Sold By Business On Account Or On Credit / The Effect Of Credit Sales On The Accounting Equation

When a business rendered or performed services on account / credit, then Accounts Receivable Account and Sales Account are affected as the customers to whom the business rendered services did not pay at the time of receiving services but to pay at some later date. So, the sales is also made on account i.e., Credit Sales is made as not payment is received at the time of rendering the services to customers.

According to Accrual Concept, we record a Business Transaction whether the cash is paid or not.

Example, Mr. A is a Sole Proprietor in his own business. He sold / performed services for his client, Mr. B for Rs. 2000 but the client did not pay at the time of receiving services but he will pay at a future date as agreed between both of them. What is the journal entry and two accounts involved in this transaction which affects the accounting equation?

The following journal entry is recorded for services rendered on account:

                                                                 Accounts Receivable a/c  2000

 

                                                                                                              Sales a/c  2000

 

                                                                         (Services Performed On Account)

The Effect Of Services Sold On Account On The Accounting Equation

                                                        Assets                   =  Liabilities  +  Owner’s Equity

                                        +Accounts Receivable        =          0          +       (+Sales)

                                                       +2000                     =          0          +         (+2000)

                                                         2000                     =          0          +            2000        

Accounts receivable, as a current asset, is increasing, so we added it to the asset side of the accounting equation while sales is the result of operational activities or profitable activities of the owner of the business, so we added it to Owner’s Equity on the right side of the accounting equation. The total of asset side (Rs. 2000) is equal to liabilities and owner’s equity side (Rs. 2000), so the accounting equation is remained in balance.