Service Revenue pertains to income earned from rendering services (intangible products). It is the main revenue account of service-type businesses.
Service Revenue is a revenue (or income) account. It is shown as the first item in the body of the income statement of a service business.
It is important to note that advanced collections from clients or customers are not treated as service revenue yet. They become part of service revenue only when the services are rendered. Services already rendered to which the fees are yet to be collected are considered as service revenue.
This is in line with the accrual concept of accounting. Service revenue is recognized when earned regardless of when the amount is collected. When is service revenue earned? It is earned when the services have been rendered or performed.
Service revenues can arise from rendering services for cash or on account (on credit) to be collected at a later date.
The journal entry for services rendered for cash is to debit Cash and credit Service Revenue. Cash is an asset account hence it is increased by debiting it. Service Revenue is a revenue account; it is increased by crediting it. The pro-forma entry is:
The entry for services rendered on account includes a debit to Accounts Receivable instead of Cash. Notes Receivable is used if a promissory note was issued by the client.
1. On December 10, 2020, GLUBE Company rendered services and collected the full amount, $900. The journal entry would be:
2. On December 12, 2020, the company rendered services on account for $2,500 to a major customer. The entire amount is to be paid by the customer after 15 days.
3. On December 15, 2020, the company rendered services, $1,000. The customer paid 30% of the total amount and was given 15 days to pay the remaining balance.
The third example is a compound journal entry (more than one item debited and/or credited). The portion collected is debited to Cash while the remaining balance is debited to Accounts Receivable.