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Nature of Transactions in A Service Business

A service business provides intangible services rather than physical goods. Services are inseparable from their providers and perishable once performed. Key characteristics of services include intangibility, inconsistency, and inseparability from their providers. Service businesses earn revenue by facilitating work for clients in exchange for fees. Service revenue is the income generated from services and is recorded as a credit on the business's financial statements once services are substantially completed under the accrual method of accounting.

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Yanela Yisha
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226 views

Nature of Transactions in A Service Business

A service business provides intangible services rather than physical goods. Services are inseparable from their providers and perishable once performed. Key characteristics of services include intangibility, inconsistency, and inseparability from their providers. Service businesses earn revenue by facilitating work for clients in exchange for fees. Service revenue is the income generated from services and is recorded as a credit on the business's financial statements once services are substantially completed under the accrual method of accounting.

Uploaded by

Yanela Yisha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Nature of Transactions in a Service Business

Service
is any intangible product, which is essentially a
transaction and is transferred from the buyer to the ➢ Inseparability
seller in exchange for some consideration (or no One unique characteristic of services
consideration). is that the service and the service
provider cannot be separated. Unlike
Service business with goods/products the
is a service provider to customers that exchanges manufacturing and the consumption
work performed for payment. of services cannot be separated by
storage.
❖ Business Services (Business-to-Business
Services) ➢ Perishability
Services used by businesses to conduct Services cannot be stored, saved,
their business activities. This COD returned or resold once they have
banking, insurance, transportation, etc. been used. Once rendered to a
customer the service is completely
❖ Personal Services (Business-to-Consumer consumed and cannot be delivered to
Services) another customer.

are commercial activities that are


provided to individuals according to their
A service business provides a needed service
individualistic needs. The service here is
for a fee. In general, service businesses
extremely personalized to the customer.
actually have no physical product sold to
Social Services
clients.
are essential public services. They are
Their services are designed to facilitate the
provided by the government or other
work of clients and in return are paid.
non-profit organizations. The service is
not provided for a profit motive but as a
Service businesses include salons or barber
social cause.
shops, laundry services, car repairs, medical
CHARACTERISTICS OF A SERVICE centers and services of professionals like
lawyers and doctors.
➢ Intangibility
A service is not a physical product that Accounting includes a balance of all revenue
you can touch or see. A service can be and profits that a business generates. Service
experienced by the buyer or the receiver. revenue is one line item on the income
Also, you can not judge the quality of the statement that accounts for revenue from any
service before consumption services that a business provides.

➢ Inconsistency (Heterogeneity /Variability)


There can be no perfect standardization
of services. Even if the service provider
remains the same, the quality of the
service may differ from time to time.
Service revenue is the income that a business
generates in return for completing a service. It
includes any service that the business
provides, whether or not the customer submits Is Service Revenue a Debit or Credit?
payment.
The normal balance of service revenue is
Service revenue doesn't include things like a credit. It means that when a business entity
shipment of goods or interest. It focuses has earned the service revenue, it’s recorded
primarily on the services of the business. on the credit side of the trial balance, in
journal entry and ledger. Besides, the nature of
revenue is also credit.

How To Record Service Revenue?

➔ The accounting method recognizes and


records the service revenue in a business
entity’s accounting books and financial
statements.

➔ The revenue of a service business is usually


realized once the service has been
substantially completed.

➔ Under the accrual system, revenue or expense


is recognized and recorded when the services
have been received or provided. The
recognition is irrespective of when cash is
received or paid.

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