We are taking ownership of fixed assets from a customer in exchange for a discount on monthly billing. We are taking over the service our customer is presently offers. What should my initial journal entry be?

This is an odd situation.

So you get to keep the fixed assets just curious what are they and what is the fair market value of the assets in question? In exchange you are giving them a discount on your products?

What service are you taking over some kind of revenue stream and is this related to the transaction above?

Please give more details and maybe I can help you…

We are taking their existing server room in exchange of us providing IT service. I am thinking the transaction would be PPE and Revenue or Unearned Income

At how much of a discount will you be providing the IT services? I am sorry to ask so many questions but this is a highly unusual situation. Have you agreed on a Fair Market Value of the server room? If so you should agree to give total discounts no greater than this amount.

Without knowing the accounts you have available to use I cannot tell you exactly what to debt and credit but here is an example. Let's say you both agree the servers are worth 30,000. You would debt an account like Equipment – Computer for this amount and credit a liability account (call it services owed to customer xxxx) for the same amount. Lets say you agreed to a 20% discount until the 30,000 is fully used up (without this you could end up giving discounts in excess of the servers value). When you bill the customer (say $1,000) the entry would be Revenue Cr 1,000, Services owed to customer Db 200, A/R debt 800.

In fact I would advise against this kind of transaction. Why not just pay cash for the servers in question. You could get yourself into a sticky situation here.