Service revenues are a type of income that an organization earns by providing a service. The accounting equation states that assets are equal to liabilities plus capital, so if the company's net asset figure is positive, it means that it has more current assets than current liabilities. If the company has fewer current assets than current liabilities, this will affect its liquidity and solvency. Therefore, it must be included in the total of current assets and total current liabilities to determine how liquid an entity is.
Service revenues in and of themselves are not an asset. This can be confusing because service revenues technically contribute to your asset account in your general ledger when using the double-entry accounting method. However, for financial accounting purposes, revenues from services are not considered an asset. In accounting definitions, a current asset (such as accounts receivable) is any asset that will provide economic value during or within a year.
In short, service revenues are reported in an income statement and are not an asset (nor a current asset). So yes, service revenues are not an asset. Rather, it's an income account. Accrued service revenues are recognized and recorded as income in the income statement or profit income of 26% of a business entity's loss.
Revenue from services is not an asset or a liability. However, service revenues can be treated as assets or liabilities when they are overdue or received in advance. We will discuss this in the following sections. Pre-defining a list of your services along with the corresponding price list can help accelerate this step.
The main reason that service revenues are not a current asset is that they are not directly related to any particular company. And every time your business earns revenue from services, its value increases as it receives cash or accumulates accounts receivable. According to Forbes, companies that combine service-based and product-based businesses generate more revenue from services than from products. For example, if a project is 25% complete, you'll get 25% of the service revenue you expect to earn from the project.
Companies need to have this account because it helps them plan how much they need to provide their services and remain profitable. Accounts receivable are generally incurred when buyers pay a company for their products or services with credit. If services have been provided and revenues have not yet been collected, the amount receivable will be included in “accounts receivable” in a company's balance sheet. The journal entry for services provided on account includes a debit to the asset (Accounts Receivable) and a credit to Revenue from Services.
This means that all charges for services provided to date can be included in an income statement, even if all invoices have not yet been sent to customers. For example, when you provide a service, you earn cash or promise to be paid at a later date (accounts receivable). This method of recognizing service revenues is typically used for services that span multiple periods. Accounts receivable are funds owed to a company: customers who have received a good or service, such as a maintenance staff who provides service to a customer and sends an invoice, but hasn't been paid.
The type of service provider depends on what they offer, so you can hire an accountant if you need tax advice, or have your car fixed at an auto repair shop if something breaks down. Now that we've looked at what service revenue is and what an asset is, we can finally address the question “Is service revenue an asset?”. .