JE for Use of property, or hire of services, of another person is parted with in exchange for money received

Use of property, or hire of services, of another person is parted with in exchange for money received

Illustrative example for use or hire of property (owned by the company):

On June 20, 20x2, AAA Trucking Services Company received cash, P45,000.00, from a customer for the 10-day use of its delivery truck . 

How to record the above transaction

Step 1

Remember the guiding principle. 

DEBIT the Value Received

CREDIT the Value Parted With 

Applicable debit and credit rules 

Rule 1
When the value received is a thing of value, an asset is increased.
Therefore, debit the asset account title of that thing of value with the amount of increase.  

Rule 9
When the value parted with is the use, or hire, of (our) property or services, the capital / proprietorship account is increased.
Therefore, credit the income account title with the amount of increase.   Note that income and expenses are implicit components of an equity account. That the net income or loss forms part of equity and to get the net income or loss, deduct expenses from revenue or income.

Step 2

Analyze the business transaction or economic event

• What is the value received  - Money
• What is the value parted with - Use of (company) property
• Assign the account title for the value received - Cash
• Assign the account title for the value parted with - Rental Fee
• What is the effect of the value received in the accounting equation -  Increase in Asset
• What is the effect of the value parted with in the accounting equation - Increase in Capital
• Measure the amount equivalent of the value received - P45,000.00
• Measure the amount equivalent of the value parted with -  P45,000.00 

Step 3

Record the journal entry

• Record the date of the transaction

Date of transaction:   June 20, 20x2

• Record the debit with the amount of the value received

Debit the value received :  Cash  P45,000.00

• Record the credit with the amount of the value parted with

 Credit the value parted with :  Rental Fee  P45,000.00 

• Write the explanation of the transaction or events.

Brief Explanation:  To record the cash receipt from a customer for the 10-day use of the company delivery truck. 

The finished journal entry of the above transaction

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Illustrative example for use or hire of services:

On June 5, 20x2, AAA Trucking Services Company received cash, P2,000.00, for the item-loading services rendered to a customer.

How to record the above transaction

Step 1

Remember the guiding principle. 

DEBIT the Value Received

CREDIT the Value Parted With 

Applicable debit and credit rules 

Rule 1
When the value received is a thing of value, an asset is increased.
Therefore, debit the asset account title of that thing of value with the amount of increase.  

Rule 9
When the value parted with is the use, or hire, of (our) property or services, the capital / proprietorship account is increased.
Therefore, credit the income account title with the amount of increase.  Note that income and expenses are implicit components of an equity account. That the net income or loss forms part of equity and to get the net income or loss, deduct expenses from revenue or income. 

Step 2

Analyze the business transaction or economic event

• What is the value received  - Money
• What is the value parted with - Hire of services
• Assign the account title for the value received - Cash
• Assign the account title for the value parted with - Service Income
• What is the effect of the value received in the accounting equation - Increase in Asset
• What is the effect of the value parted with in the accounting equation - Increase in Capital
• Measure the amount equivalent of the value received - P2,000.00
• Measure the amount equivalent of the value parted with - P2,000.00 

Step 3

Record the journal entry

• Record the date of the transaction

Date of transaction:   June 5, 20x2

• Record the debit with the amount of the value received

Debit the value received :  Cash  P2,000.00

• Record the credit with the amount of the value parted with

 Credit the value parted with :  Service Income  P2,000.00

• Write the explanation of the transaction or events.

Brief Explanation:  To record the cash receipt from a customer for item-loading services.

The finished journal entry of the above transaction