Am learning Accounting online and after learning thru different sites I stumbled on this site and thought I should give it a shot. So I found this example that ended up confusing me in the accounts involved. Here is the eample:
Sample Transaction #4
Now In my head, I though it should debit the accounts cash account and credit accounts receivables. I thought so because when we created Invoice we debited accounts receivable. Isn't the payment to invoice supposed to now credit the same amount? Can someone explain to me in simple terms why am I wrong?The fourth transaction occurs on December 3, when a customer gives Direct Delivery a check for $10 to deliver two parcels on that day. Because of double entry, we know there must be a minimum of two accounts involved—one of the accounts must be debited, and one of the accounts must be credited.
Because Direct Delivery received $10, it must debit the account Cash. It must also credit a second account for $10. The second account will be Service Revenues, an income statement account. The reason Service Revenues is credited is because Direct Delivery must report that it earned $10 (not because it received $10). Recording revenues when they are earned results from a basic accounting principle known as the revenue recognition principle. The following tip reflects that principle.