e) Now George’s Catering provides catering services for a wedding. George gets $10,500 from this job in cash. What happens to our accounting equation?
Bank has increased. As we have seen before, this means that we debit bank.
The business has made income, and this is worth $10,500.
Remember, more income means more profit, which means more for the owner. Income thus comes into being (and increases) on the same side as the owner’s equity – namely the right side.
The accounting entry is:
In accounting we list the exact type of income that took place (in this case it's services rendered).
Remember that income is not the assets (i.e. cash) you get from, for example, rendering services. It is the event itself (the rendering of the service) that results in cash coming in (immediately or at a later stage).
The cash is the asset part of the transaction. Income is the event that takes place that results in more assets being owned by the owner.
If you are having any difficulty understanding this example of income, return to our earlier lesson called Define Income where we go over in detail what income is and how it fits in with the accounting equation.