Journal Entry for Commission Received in Advance ₹ 7,000

To record the commission received in advance of ₹ 7,000, we need to make a journal entry in the books of accounts. This transaction involves the receipt of cash before the actual provision of services or completion of the related activities.

1. Date and Description:
Let's assume that the commission was received on January 1, 2022. The journal entry should start with the date and a brief description of the transaction.

2. Debit and Credit:
In this case, since cash is received in advance, the cash account should be debited to record the increase in assets. At the same time, a liability account named "Commission Received in Advance" should be credited to indicate the obligation to provide the services in the future.

The journal entry for the commission received in advance ₹ 7,000 would be as follows:

January 1, 2022
Cash (Dr) ₹ 7,000
Commission Received in Advance (Cr) ₹ 7,000

This journal entry follows the basic accounting principle of double-entry, where every debit has an equal and opposite credit.

3. Impact on Financial Statements:
The commission received in advance affects both the balance sheet and income statement:

- Balance Sheet: The cash received in advance will be shown as an asset on the balance sheet under the current assets section. Simultaneously, the liability created for the commission received in advance will be reflected on the liabilities side, under the current liabilities section.

- Income Statement: As the commission is received in advance, it does not represent revenue earned yet. Therefore, it will not be recognized as income on the income statement until the related services are provided or the activities are completed.

4. Recognition of Revenue:
When the services or activities related to the commission received in advance are performed, the revenue can be recognized. At that time, the liability account "Commission Received in Advance" will be debited, and the corresponding revenue account will be credited.

It is important to keep track of such advance payments to ensure accurate financial reporting and proper recognition of revenue.