Accounting for Servicing

Business
Guillermo Briones
Nature of a Service Business

š Any commercial organization engaged in an activity that provides service to clients for a
profit is called a servicing business or a servicing firm.
š In general service business have no physical product actually sold to client, instead, their
product is service. Their service is primarily designed to assist or facilitate the work of
clients in exchange for a fee.
š Common examples of a service business are barbershop, laundry shop, beauty parlor.
š Some service business include banks, schools, public accounting, law firms and
transportation companies.
Accounting for Service Income

š The accounting for income from service business may be presented in a conventional
method or nonconventional method.
Conventional Approach

š In servicing business the common accounting practice is the use of the conventional
method. This method considers all costs related to the performance of services to
customers as operating expenses Generally this approach normally uses a single step
income statement.
To illustrate, assume the following transactions of A Beauty Parlor,
owned by Mr. Kelly Power for the month of December 2019

1. Supplies used and paid during the month:

a) Directly used in service rendered to customers, P15,000.00.
b) Office supplies used in the office, P5,000.00.
2. Salaries paid during the month:
a) Salaries of workers directly involved in rendering service P175,000.00
b) General administrative and office salaries, P125,000.00.
3. Rent expense incurred and paid during the month P7,000.00
4. Services rendered to customers on cash, P200,000.00 and on account, P300,000.00.
5. Interest expense incurred and paid during the month P1,000.00.
6. Sale of a fully depreciated furniture, P5,000.00
The books of the business as of December 31, 2019 reveals
the following information:
The related journal
entries to record
December 31, 2019
transactions are as
follows: