Illustrative example:
On June 18, 20x2, AAA Trucking Services Company presented Bill No. 8888, P280,000.00 to Angel Martin Cakes and Ice Cream Company, a customer, for the delivery and trucking services rendered by AAA which the customer promised to pay in 15 days.How to record the above transaction
Step 1
Remember the guiding principle.
DEBIT the Value ReceivedCREDIT the Value Parted With
Applicable debit and credit rules
Rule 3
When the value received is an oral promise to pay from a debtor, an asset is increased.
Therefore, debit the debtor's account / asset account title 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 - oral promise to pay
- What is the value parted with - hire of services
- Assign the account title for the value received - Accounts Receivable
- 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 - P280,000.00
- Measure the amount equivalent of the value parted with - P280,000.00
Step 3
Record the journal entry
- Record the date of the transaction
Date of transaction: June 18, 20x2
- Record the debit with the amount of the value received
Debit the value received : Accounts Receivable P280,000.00
- Record the credit with the amount of the value parted with
Credit the value parted with : Service Income P280,000.00
- Write the explanation of the transaction or events.
Brief Explanation: To record delivery and trucking services rendered to Angel Martin Cakes and Ice Cream.
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