The Meaning and Methods of Service Revenue
Service revenue is the income a company earns from providing services to customers, excluding the sale of goods or interest. It is recognized when services are performed, regardless of payment collection.
The recognition of service revenue can take place through various methods. They are as follows:
Service revenue accounts record income earned from performed services, irrespective of payment. For instance, a band playing at a wedding for $1500 would accrue the revenue, even if the payment is yet to be received.
Revenue recognition occurs only upon receipt of payment under this method. It is employed when there is uncertainty about receiving payment. For instance, a real estate broker recognizes revenue only after receiving the commission for a house sale.
Revenue is recognized upon completion of a standalone service under this method. For instance, a laundromat recognizes revenue from individual laundry services as they are completed.
This revenue recognition method is similar to the specific performance method but allows for combined services. Payment for a completed service, such as packing, transporting, and deploying, is received after the entire process is finished, as seen with a moving company.
This method recognizes service revenue at specific stages of completion, commonly used for long-term projects like construction. It allows for recording revenue in each accounting period based on the progress made.