Cash now vs. on account — same event, different second line
Two versions of the same week: the studio earns $1,500 of revenue and incurs $600 of advertising. In version one everything settles in cash; in version two everything is on account. Journalize both worlds.
The journal entry
Earn $1,500, collected immediately
| Account | Debit | Credit |
|---|---|---|
| Cash | $1,500 | |
| Service Revenue | $1,500 |
Pay $600 for this month's ads
| Account | Debit | Credit |
|---|---|---|
| Advertising Expense | $600 | |
| Cash | $600 |
- Cash (debit): Earning and collecting coincide.
- Service Revenue (credit): Recognized because the work is done.
- Advertising Expense (debit): Benefit consumed this period.
- Cash (credit): Settled immediately.
Remember this
- formula
Payment timing changes ONE line: the cash line becomes AR (if owed to you) or AP (if you owe). The revenue/expense line is untouchable — earning and incurring set it, not cash.
- watchout
Settling later is a two-entry story: recognize now (revenue/expense + AR/AP), settle later (Cash + AR/AP). The second entry never repeats the income effect.