Question

Russell's Consulting Services Company provided $1,000 of services to the local college and immediately collected $700, but the college wants to pay the rest next month. Record this transaction in the accounting equation for Russell's Consulting Service by:

Answer 1

Since the college wants to pay $300 later (1000 – 700), Russell’s Consulting Services Company will classify this amount as a receivable.

The journal entry required for this transaction is:

Cash A/C Dr 700

Accounts Receivable A/c Dr 300

To Sale of services 1000

There are three accounts involved – cash, accounts receivable and sales.

Of these, cash and accounts receivables are a part of the balance sheet and these accounts will show an increase of $700 and $300 respectively.

Sales (or Revenues), on the other hand, forms a part of the income statement and will show an increase of $1000.