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
seller in exchange for some consideration (or no
consideration).
Service business
is a service provider to customers that exchanges
work performed for payment.
❖ Business Services (Business-to-Business
Services)
Services used by businesses to conduct
their business activities. This COD
banking, insurance, transportation, etc.
❖ Personal Services (Business-to-Consumer
Services)
are commercial activities that are
provided to individuals according to their
individualistic needs. The service here is
extremely personalized to the customer.
Social Services
are essential public services. They are
provided by the government or other
non-profit organizations. The service is
not provided for a profit motive but as a
social cause.
CHARACTERISTICS OF A SERVICE
➢ Intangibility
A service is not a physical product that
you can touch or see. A service can be
experienced by the buyer or the receiver.
Also, you can not judge the quality of the
service before consumption
➢ 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.
➢ Inseparability
One unique characteristic of services
is that the service and the service
provider cannot be separated. Unlike
with goods/products the
manufacturing and the consumption
of services cannot be separated by
storage.
➢ Perishability
Services cannot be stored, saved,
returned or resold once they have
been used. Once rendered to a
customer the service is completely
consumed and cannot be delivered to
another customer.
A service business provides a needed service
for a fee. In general, service businesses
actually have no physical product sold to
clients.
Their services are designed to facilitate the
work of clients and in return are paid.
Service businesses include salons or barber
shops, laundry services, car repairs, medical
centers and services of professionals like
lawyers and doctors.
Accounting includes a balance of all revenue
and profits that a business generates. Service
revenue is one line item on the income
statement that accounts for revenue from any
services that a business provides.
 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
payment.
Service revenue doesn't include things like a
shipment of goods or interest. It focuses
primarily on the services of the business.
Is Service Revenue a Debit or Credit?
The normal balance of service revenue is
credit. It means that when a business entity
has earned the service revenue, it’s recorded
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.