Recording Michigan Sales Consultants Transactions: Accounts

Ch.Q7 In this problem, we will focus on the first three steps. We will analyze and then recordMichigan Sales Consultants transactions in the journal (journalize the transactions). Part 4Jan. 22: Performed services for customers on account,$7,000. Step1:Identify the accounts and the account type (asset, liability, or equity). Michigan Sales Consultants performs a service for a client who does not pay immediately. The business receives the client's promise to pay $7,000. This promise is an asset, anaccounts receivable, because the business expects to collect the cash in the future. In accounting, we say that the company performed this serviceon account. It is in performing the service (doing the work), not collecting the cash, that the companyearnsthe revenue. As a result, this transaction increases Accounts Receivable (an asset) and increases Service Revenue (equity). Step2:Decide if each account increases or decreases using therulesof debits and credits. Accounts Receivable increases. The business is now owed an amount from a customer. Service Revenue increases. Michigan Sales Consultants has earned revenue by performing tax services. An increase in an asset account is recorded with a debit, and a revenue account is recorded with a credit. Step3:Record the transaction in the journal. To record this transaction in the journal we must increase Accounts Receivable (an asset) with a debit of $7,000 and increase Service Revenue (an equity) with a credit of $7,000. Record the entry. Be sure to select a brief description of the transaction on the last line of the journal entry table. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.) DateAccounts and ExplanationDebitCredit Jan. 22Accounts Receivable7,000 Service Revenue7,000 Performed service for customers on account. Part 5 Jan. 30: Received cash on account from customers,$12,000. Step1: Cash (an asset) and Accounts Receivable (an asset) are the two accounts involved Step2:Decide if each account increases or decreases using therulesof debits and credits. Cash increases. The business has more cash than it had before. The business performed services for a client on account on a previous date (prior to January). On January 30 the business is collecting $12,000 of the amount due from a client. We say that Michigan Sales Consultants collects the cashon account. The business will record an increase in the asset Cash. Should it also record an increase in Service Revenue? No, because the business already recorded the revenue when it previously earned it. The phrase "collect cash on account" means to record an increase in Cash and a decrease in Accounts Receivable. An asset account (Cash) increase is recorded with a debit. A decrease in an asset account (Accounts Receivable) is recorded with a credit. Step3:Record the transaction in the journal. To record this transaction in the journal, we must increase Cash with a debit of $12,000 and decrease Accounts Receivable with a credit for $12,000. Go ahead and prepare the entry. Be sure to select a brief description of the transaction on the last line of the journal entry table.