-This question was submitted by a user and answered by a volunteer of our choice.
The sale of services might be a new concept for you as we have commonly heard more about the sale of goods by businesses. However, the treatment of the two is the same in the books of accounts. Like goods, the sale of services is made on cash as well as credit basis. There are plenty of services provided by companies such as financial, management, software, consulting, marketing services, etc.
Journal entry – sale of service on credit
The respective debtor account is debited while the sales account is credited.
1. According to the golden rules of accounting:
| Debtors a/c | Debit | Debit the receiver |
| To Sales a/c | Credit | Credit all incomes and gains |
(being services sold on credit)
2. According to the modern rules of accounting:
| Debtors a/c | Debit | Debit the increase in asset |
| To Sales a/c | Credit | Credit the increase in revenue |
(being services sold on credit)
Example
Mr. K availed the financial services of XYZ Ltd. in May amounting to 20,000 with an agreement to pay the same in the following month. The journal entry in the books of XYZ Ltd. for the month of May is as follows:
| Mr. K’s a/c | Debit | 20,000 |
| To Sales a/c | Credit | 20,000 |
(being services sold on credit)
Hope this helps.
