How to Record Sold Services on Account Debit or Credit

Recording sold services on account debit or credit can be a straightforward process if you know the basics.

To record sold services on account debit, you'll need to debit the accounts receivable account, as seen in example 1, where a customer is invoiced for $1,000 in services rendered.

You'll also need to credit the revenue account, which is the account that tracks the income earned from providing services. This is demonstrated in example 2, where a company credits its revenue account for $1,000 in services provided.

Debiting accounts receivable and crediting revenue is a common approach to recording sold services on account debit.

A credit sale is a transaction where a customer pays for a service or product with credit, rather than cash. This means the business receives payment at a later date.

When you make a credit sale, you increase your Revenue account with a credit, just like in the example where a $500 sale is credited to Revenue. This is because the sale has increased your revenue, even though the customer hasn't paid yet.

You also increase your Accounts Receivable account with a debit, as seen in the same example. This is because you've received the sale, but the customer still owes you the money.

A debit is an entry made on the left side of an account, which increases an asset or expense account or decreases equity, liability, or revenue accounts.

Debits are recorded on the left side of an account, making it easy to spot where they belong.

You debit the purchase of a new computer by entering it on the left side of your asset account.

To illustrate, let's consider a sale made on credit: you make a $500 sale to a customer who pays with credit, increasing your Accounts Receivable account with a debit.

Here's a quick recap of the key points regarding debits vs. credits:

Recording transactions is a crucial part of accounting for services sold on account. A transaction price of $1,500 per cleaning is determined, with an agreement for $18,000 verbally, but each obligation under the contract is $1,500.

To record these transactions, a debit and credit journal entry is made. This entry involves increasing one account while decreasing another, with the amounts being equal but opposite.

A basic debit and credit journal entry looks like this:

The transaction price is determined, and now it's time to allocate it to the performance obligations. This means breaking down the total price into smaller amounts for each individual obligation.

In some cases, like a one-year contract for $18,000, you can allocate the entire price to each month of service. However, if the contract is for multiple years or has varying obligations, you'll need to consider the specific terms.

The key is to recognize that each cleaning, for example, could be seen as a single contract. This means each cleaning is a separate obligation with its own price allocation.

A journal entry is a record of a transaction that affects your accounts. It's a crucial part of recording transactions accurately.

To create a journal entry, you need to identify the accounts involved and whether you're increasing or decreasing one of them. If you're increasing one account, you need to decrease the opposite account.

A debit and credit journal entry looks like this:

This format shows that for every debit, there's an equal but opposite credit. If you increase one account, you need to decrease the other account and vice versa.

You'll get a Form 1099-K from your payment processor or payment settlement entity if your customers or clients pay you directly by credit, debit, or gift card, no matter how many payments you got or how much they were for.

To reduce the balance of cash on hand, you should debit increases in cash and credit accounts receivable.

If you're paid directly, you'll have a clear record of the payments you've received, making it easier to track your income and expenses.

You'll get a Form 1099-K from your payment processor or payment settlement entity if your customers or clients pay you directly by credit, debit, or gift card.

You don't need to have a large number of payments or a high total amount to receive a Form 1099-K, it will be sent regardless.

Receiving a Form 1099-K is a straightforward process that's handled by your payment processor or payment settlement entity.

Collecting cash from customers is a crucial step in receiving payment.

Debit increases in cash to record the receipt of cash.

Credit accounts receivable to reduce its balance, as seen in the example where a credit sale of $1,495 reduces the accounts receivable balance.

You can also use this method to record cash received from other sources, like a loan or an investment.

In the case of a credit sale, you'll credit accounts receivable for the amount collected.

For instance, if you collect $1,495 from a customer, you'll credit accounts receivable for that amount.