Services on Account

Service revenue is generated when a business supplies its services to a customer. The services can either be provided for immediate cash payment or more usually the services are provided on account and invoiced to the customer at a later date.

The invoicing of services on account means that an amount of money will be owed by the customer to the business, and this is referred to as a trade accounts receivable or trade debtor.

Suppose for example, a business provides web design services on account for the amount of 2,500, then the bookkeeping journal entry will be as follows.

Sold Services on Account Journal Entry

The accounting records will show the following bookkeeping entries for the web design services sold on account:

Sold Services on Account Journal Entry
Account Debit Credit
Accounts receivable 2,500
Service revenue 2,500
Total 2,500 2,500

Sold Services on Account Bookkeeping Entries Explained

Debit
The customer owes you money for the services until they are paid for. The business now has an asset (trade accounts receivable or trade debtor) for the amount due.

Credit
A service is provided to the customer and the service revenue is taken to the income statement.

The Accounting Equation for Services on Account

The accounting equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities of the business This is true at any time and applies to each transaction. For this transaction the accounting equation is shown in the following table.

Services on Account Accounting Equation
Assets = Liabilities + Owners Equity
Accounts receivable = None + Service revenue
2,500 = 0 + 2,500

In this case one asset (accounts receivable) increases representing money owed by the customer, this increase is balanced by the increase in owners equity. The credit to the income statement for the service revenue, increases the profit which increases the retained earnings and therefore the owners equity in the business.

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