Quiz And Test For Students - Accounting Journal Entries - Billed Customers For Services Performed Journal Entry - What Is The Effect Of This Transaction On Accounting Equation?

Accounting Problems And Solutions / Exercises And Solutions

Record the Accounting Entries for the below given transactions (Just Pass Entries With Amount And Narration / Explanation). What types of accounts are involved in the business transactions. State with reasons why we debit an account and credit an account

1. 1st July, 2021: Mr. A started business as a a Sole Proprietorship with cash Rs. 500000.

2. 2nd July, 2021: He Purchased Goods worth Rs. 100000 from vendor on account.

3. 18th July, 2021: He sold merchandise / goods worth Rs. 150000 to customer, Mr. B on account.

4. 21st July, 2021: He sold merchandise for Cash Rs. 30000 to customer, Mr. C.

5. 23 July, 2021: He withdrew cash of Rs. 8000 from the business for his own personal use.

Solution:

The following journal entries are recorded in the Book of Accounts of Mr. A's business:

1.

                                                       Cash a/c  500000

                                                                                  Capital a/c  500000

                                                (Mr. A made an initial investment in the business)

Cash and Capital account. Cash is a current asset account while capital is categorized under owner's equity. As Cash increases, we debit it and when capital increases, we credit it.

2.

                                                           Purchases a/c  100000

                                                                                        Accounts Payable a/c   100000

                                                        (Purchased Merchandise On Account / Credit)

Purchases and Accounts Payable account. Purchases is a direct expense and as it increases, we debit it while accounts payable as a current liability increases, we credit it.

3.

                                                         Mr. B  150000

                                                                       Sales  150000

                                                         (Sold Merchandise On Account)

Mr. B is a Account Receivable account and Sales is a direct revenue account. As accounts receivable increases, so we debit it while sales increases, we credit it as it is increases on normal credit side.

4.

                                                              Cash a/c  30000

                                                                  

                                                                                 Sales a/c  30000

                                                            (Sold Merchandise For Cash)

Cash account and sales account. Cash is a current asset while sales is a direct revenue. When cash increases, we debit it while increase in sales is recorded on credit side.

5.

                                                       Drawings a/c   8000

                                                                                   Cash a/c  8000

                                                    (Withdrawn Cash For Household Expenses)

Drawings Account and cash account. Drawings account is a Contra Capital Account while cash is a current asset account. When drawings account increases, we debit it as it is the reversal of capital account while a cash account decreases, so we credit it as credit side is negative side for such account.

Question And Answer With Examples And Short Questions And Their Answers

Billed Customers For Services Performed Increase In Assets ? / Billed Customers For Services Performed Debit And Credit ?

When the sole proprietor or company or corporation performed or rendered services to its clients /customers then it billed to the clients for the payment not yet received against the services performed / rendered by the business to customers or clients.

When a company or corporation billed to its customers, then following journal entry is recorded as shown below:

Billed Customers For Services Performed On Account / Credit Journal Entry

                                                       Accounts Receivable a/c  XXX

 

                                                                                                   Services Revenue a/c  XXX

 

                                                                (Billed Customers For Services Rendered)

From the above journal entry, it is clear that Accounts Receivable as a current asset increased, so we debit it as it is a normal balance side for accounts receivable. Similarly, Service Revenue Account is also increased, so we credit it as when revenue increases, we credit it as it is a normal balance side for it.

Example: A company performed services for its clients for Rs. 50000 on account. What is the journal entry when the corporation billed to customers?

The entry to record is shown below:

                                   Accounts Receivable a/c  50000

                                                                           Service Revenue a/c  50000

                                                       (Services Performed On Account)

Account receivable is increased by Rs. 50000 while service revenue is also increased by Rs. 50000. So both side of accounting equation increased by Rs. 50000 but the balances of both sides remain equal.

Billed A Customer For Services Rendered Increase Or Decrease

As the accounts receivable from whom the business will collect the payment is increasing, so we debit it and as the business earned the service revenue by rendering the services to clients, so it is also increasing, so we credit it.

On the other hand, when we collect the payment from clients / customers, then accounts receivable is decreased and now we actually received the cash against services revenue earned for the period, so it it is increased. In this way, we debit cash account and credit accounts receivable account and the resulted entry (by adding billed customer for services performed on account and cash collected from clients journal entries) is:

                                                                         Cash a/c  XXX

 

                                                                                             Services Revenue a/c XXX

 

                                                             (Cash Received Against Services Revenue )

Example: Mr. A is a sole owner of his own business. He performed service for his client, Mr. B for Rs. 5000. He Billed to Mr. B for service. What is the journal entry and the effect of this transaction on accounting equation?

                                                                     Mr. B  5000

 

                                                                                        Service Revenue a/c  5000

 

                                                                (Billed To Mr. B For Services Performed)

Effect Of Billed Customer (Mr. B) For Services Performed On Accounting Equation / Billed Customers For Services Performed Accounting Equation

                                        Assets                =        Liabilities        +          Owner’s Equity

                         +Accounts Receivable    =                0                +       (+Service Revenue)

                                      +5000                   =                0                +                (+5000)

As accounts receivable, being a Current Asset, is increasing, so we added it to the asset side of the Accounting Equation. As the service revenue is the result of operating activities of the owner (Mr. A) of the business, so it affects the Owner’s Equity, so we added service revenue to the right side of the accounting equation. Hence, the accounting equation remains in balance on both sides at Rs. 5000.