COMPREHENSIVE ILLUSTRATION -- TRANSACTION IMPACT ON FINANCIAL STATEMENTS

Transaction #3:  Provided services to customers for cash

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This illustration shows how cash of $4,000 is received for services rendered.  Assets and equity increase by the same amount, leaving the balance sheet in balance.  The increase in equity is triggered by an increase in income, and therefore an increase in retained earnings.

Debit/Credit Logic:

• Cash is an asset account and is increasing:  Assets are increased with debits.

• Service Revenue is a revenue account and is increasing:  Revenues are increased with credits.

To describe this transaction, we say:  Debit Cash for $4,000, and Credit Service Revenue for $4,000.