Provide Service on Account Journal Entry

When the company provides service on account, the company agrees to work for the customer first and expects to collect payment later. It is the sale of service on credit.

Any business needs to generate revenue in order to be successful, and there are a variety of ways to do this. One way is to provide a service that customers are willing to pay for. This could be anything from mowing lawns to fixing cars to providing consulting services.

Another way to generate revenue is to sell products that people need or want. This could be anything from groceries to clothing to electronics. Whatever the case may be, it is essential for businesses to find ways to generate revenue in order to stay afloat. With competition being what it is nowadays, businesses need to be creative in their approach in order to stand out from the rest.

Companies typically expect to collect cash after providing a service. However, sometimes they may have to provide service on credit. This can happen for a variety of reasons, such as when a customer doesn’t have the cash on hand or when a company offers financing as an option. Whatever the reason, providing service on credit can be risky for companies.

There’s always the possibility that the customer will never pay, leaving the company out of pocket. That’s why it’s important for companies to carefully consider whether extending credit is worth the risk. In some cases, it may be better to simply wait for the customer to have the cash available. Other times, offering credit might be the best way to win a sale.

Journal Entry

The company is making revenue by selling goods or services to customers. They require to record revenue on the income statement when the service is provided to the customers. It is not related to the cash collected.

The company has to record the revenue on the income statement as the work has been completed for the customers. As it is the service provided on credit, company has to record accounts receivable on the balance sheet.

The journal entry is debiting accounts receivable and credit sale revenue.

The entry will increase accounts receivable on the balance sheet and increase revenue on income statement.

Example

ABC is a company that provides consulting services to customers. The company has provided a customer of $ 6,000 on credit. Please prepare journal entry about providing service on account.

ABC has completed the service for the customer, so it must record the revenue on the income statement. The recording is based on the accrued basic, not the cash basic.

The journal entry is debiting accounts receivable $ 6,000 and credit sale revenue $ 6,000.