Journal Entry for Fees Earned
Fee earned is the revenue that company makes after the completion of service for the customer but has not yet received payment.
The company generates revenue by selling goods or services to the customers. The revenue will be recorded on the income statement base on the occurrence rather than paid. There are many types of revenue which include sale revenue, interest income, dividend revenue, and so on.
The fees are used when company provides several services such as:
- Consulting fees
- Rental fees
- Accounting service fees
- Auditing fees
Based on the accounting accrued basic, the company has to record fees earn based on the service performs not the cash received. When the company has performed full service, they will issue invoices to the customer and record fees earned.
Sometimes the company only performs a partial contract service for the customer. So they are not able to issue the invoice to the customer if it is not stated in the contract. However, they still are able the record fee earned based on the accrued amount. They have to do this to comply with accrued accounting basics.
Journal Entry for Fees Earned
The fee earned will be recorded as revenue on the company income statement. It happens when the company has performed service for the customers.
The journal entry is debiting accounts receivable and credit fees earned.
| Account | Debit | Credit |
|---|---|---|
| Accounts Receivable | XXX | |
| Fee Earned | XXX |
The transaction will increase the accounts receivable on the balance sheet under the current assets section. Another part of the transaction will increase the fee earned which is the revenue on the income statement.
Subsequently, the company will try to collect the cash from the customer. When the customer makes payment, they will record cash on balance sheet and reverse the accounts receivable.
The journal entry is debiting cash and credit accounts receivable.
| Account | Debit | Credit |
|---|---|---|
| Cash | XXX | |
| Accounts Receivable | XXX |
The transaction will increase cash and reverse accounts receivable from balance sheet.
Example
ABC is a consulting company for various clients. During the month, company has completed two work for clients:
- Complete consulting service amounts $ 1,000 for customers and receives the payment immediately.
- Complete accounting service amounts $ 20,000 and issue an invoice to the client. One week later, the client settle the full amount.
Please prepare a journal entry for the fee earned for two transactions.
For the first transaction, company provides the consulting service to the customer. After completing the service, the company receives cash immediately. They are not required to record through accounts receivable, they have to record directly to cash.
The journal entry is debiting cash $ 1,000 and a credit fee earned $ 1,000.
| Account | Debit | Credit |
|---|---|---|
| Cash | 1,000 | |
| Fee Earned | 1,000 |
For the second transaction, company has completed the service, so they have to record fee earned. However, they only issue invoices to the customer, not yet received payment, so they have to record accounts receivable.
The journal entry is debiting accounts receivable $ 20,000 and credit fee earned $ 20,000.
| Account | Debit | Credit |
|---|---|---|
| Accounts Receivable | 20,000 | |
| Fee Earned | 20,000 |
Subsequently, the company receives cash payments from clients, and they have to reverse accounts receivable and recognize cash.
The journal entry is debiting cash $ 20,000 and credit accounts receivable $ 20,000.
| Account | Debit | Credit |
|---|---|---|
| Cash | 20,000 | |
| Accounts Receivable | 20,000 |