Basic Accounting Question on Transactions

[mtangoo]

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

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.

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?

Thank you!

 

[kirby]

When there is a sale, it can be a sale on account or for cash. If on account you create an invoice on account and so Debt Accounts Receivable and Credit Service Revenues. If for cash you create an invoice and mark it "paid in cash" and Debit Cash and Credit Service Revenues.

 

[mtangoo]

So If I understand well, cheque is always treated as a cash? Because I though of a situation when a business writes you a cheque and they don't have enough balance in their bank account to pay for it, so I though it would be counted as Receivable up until the actual transfer of cash to your account is accomplished!

 

[kirby]

Cheque received is always treated as cash. Subsequently if the cheque is dishonored you will adjust that entry.

 

[mtangoo]

Ok Thank you Kirby!