Is Service Revenue An Asset & How To Record It In Accounting
Some businesses make revenue from their production or manufacturing and some businesses make revenue by offering their services to the clients. Revenue that is made by offering services to clients is known as service revenue.
Is Service Revenue An Asset
Services revenue is recorded in the income statement and it increases the equity by adding profit to it, so it is not considered as an asset. Service revenue is a revenue account that is neither an asset nor a liability.
After completing a project if the company is not paid for its services then the company adds that amount to accounts receivable in the balance sheet and once it is paid by clients it becomes revenue which is later on deducted from the balance sheet.
Assets are economic resources and they are expected to provide benefits in the future time while the services revenue contributes to the financial position and performance of a business.
Service revenue is always recorded on the bases of accrual accounting rather than cash accounting means when the transaction occurs it is recorded in the financial statements.
Service revenue is always recorded separately from the product revenue but in the section of total revenue, both revenues are added.
Example: A business makes revenue of $5000 by providing services ($4000) and by-product sales ($1000). The income statement shows these balances:
- Services revenue: $4000
- Product Sales: $1000
- Total revenue = $5000
Types Of Revenue
There are two types of revenue in a business which are followings:
- Operating Revenue which is generated by a business through the primary areas or sources
- Non-Operating Revenue is generated by the other activities of a business such as investment.
How Service Revenue Is Recorded In The Financial Statements
- The very first step is to perform the task or project that is given by a client and make a bill for that specific service
- The second step is to record the debit and credit entries in the accounting books
- And the third step is to record those entries in the different financial statements such as statement of financial position, statement of profit and loss, and cash flow statement.
Is Services Revenue Debit Or Credit
In accounting, there is a concept of double entry which means every transaction has two effect and entries which is debit and credit and these both must be equal in financial statements.
Service revenue is a credit entry because it increases the profit and whenever the profit is increased it is credited to financial statements.
Example: A business makes revenue of $10000 by performing its services. How this entry will be recorded in the financial statements?
If it is on accrual bases:
When service is provided and revenue is earned:
- Accounts receivable will be debited
- And services revenue will be credited
When payment is received of services revenue:
- Cash or bank is debited
- Account receivable is credited
If it is on cash bases:
- Cash is debited
- And services revenue is credited
FAQs
Which is services revenue in accounting?
Service revenue is an income for a business that is generated by offering services to the clients such as auditing, transporting, and advising.
Is service revenue a current asset?
Service revenue is not a current asset in accounting terms.
Why revenue service is not considered an asset?
Revenue is used for giving dividends to the shareholders, reinvesting in the projects, and paying debts of the company, so they are not classified as an asset in accounting.
How service revenue is recorded in the statement of profit and loss?
Service revenue is recorded as revenue in the income statement and the cost of goods sold is deducted from the revenue to give the gross profit for the year.
Is service revenue recorded in the balance sheet?
Service revenue is recorded in the income statement but it is recorded in the balance sheet as profit after tax (PAT) which is the profit for the year for a company that is recorded in the section of owner’s equity in the balance sheet.