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Hallo,
In the example below:
Assume that Sallisaw Sideboards, Inc. had a retained earnings balance of $10,000 on April 1, and that the company had the following transactions during April.
Issued common stock for cash, $5,000.
Provided services to customers on account, $2,000.
Provided services to customers in exchange for cash, $900.
Purchased equipment and paid cash, $4,300.
Paid April rent, $800.
Paid workers salaries for April, $700.What was Sallisaw’s retained earnings balance at the end of April?
Answer:
Beginning retained earnings $10,000 + Net income $1,400 ? Dividends $0 = Ending retained earnings $11,400.
Net Income = Revenue ($2,000 + $900) ? Expenses ($800 + $700) = $1,400.My question: If Provided services to customers on account, $2,000 – is accounts receivable, which goes to the B/S, why is it used here to calculate Net income, this is not received yet?
Thank you!
We take credit for income when we sell goods or provide services – it does not matter when the cash is received.
The double entry is Dr Receivables Cr Revenue.
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