Accounting in the service sector

Feb, 01 2023


The service sector is an industry with many components of the economy and management. Commercial companies, individual entrepreneurs, and businessmen carry out their activity in this area. New opportunities and forms of ownership appear: The Internet, network marketing etc. Therefore, accountants have many problematic situations.

Manufacturers of goods are qualitatively differing from service companies: they basically have material value, while a service is an intangible item, an abstraction, a certain set of actions. Thus, in the service sector is carried out by nomenclature, and is a subject to the requirements of the tax system and is not tied to the cost of materials or production.

Accounting of third-party organizations’ services is required for each company that uses the support of other enterprises. It can be as domestic support as health services. Accountant’s work area also affects legal entities using the assistance of notaries, lawyers, and external financial specialists.

Accounting in the service sector is a mixed term, covering the collection, analysis and registration of data on the property of an enterprise, as well as accounting for financial and economic operations. Companies working in this area should take into account not only the features work process itself, but also its reflection in accounting.

Features of third-party organizations’ services accounting

Consumers of services can be individuals and organizations, individual entrepreneurs, and state bodies. A service is a result obtained in the interaction between a supplier and a consumer. It could be:

• training;

• transmission of useful information;

• treatment or prevention of diseases;

• granting the accommodation right;

• delivery of passengers, goods etc.

Services differ from goods in immateriality, distinct identity, and inability to store and transport. This means that the result cannot be «touched», it is transferred to a specific consumer, and cannot be accumulated and transported. In addition, there should be a strict relationship between the production and consumption of services in time and space.

Accounting consider the peculiarities of the sphere: the request always occurs before the task is completed, and there is an inextricable link between demand and consumption. Another important condition: it is impossible to resell services. During the preparation of accounting documents, the list depending on the specific situation is determining. Such documents can be divided into two groups:

  • General, that are required to be drawn up regardless of the type of service: contract, invoice, act, checks, receipts, payment orders.
  • Private, that are prepared in certain cases: waybills and design estimates.

A written transaction is not always foreseen, so in some cases you do not need to sign a contract. The transaction will be considered as concluded after the invoice is paid for. This invoice reflects the essence of the service and the conditions for its provision. However, experts recommend even with a one-time third-party service to draw up contracts, accounts, acts for accounting. This will help to avoid disputes with contractors and tax authorities.

Service postings through Accounting

When the consumer is a legal entity or individual entrepreneur, income is reflected in correspondence with the account «Settlements with buyers and customers». If the company provides services to the public, correspondence will be with a cash settlement account or an invoice when paying by card.

Not only the service itself is intangible, but any material costs often does not require for its implementation. An example is the activity of auditors, legal consultants. In this case, all costs are immediately included into the account titled «Main production».

If the contractor provides services and uses the customer’s materials, the contractor does not formally incur material costs. Moreover, for accounting the inventory received from the customer, you need to use the account titled «Materials transferred to processing».

If the contractor uses the services of third-party companies or individuals, he cannot «resell» them, since the service is used at the time of receipt. By purchasing an «incoming» service, the contractor relates its costs directly to accounts or to increasing of value of supplies. Costs must be considered immediately upon receipt of the service, and not “stored”, as it is impossible.

But sometimes the contractor needs to organize production. For example, flyers, posters and other types of printing products are issued for advertising. In this case, records using the accounts titled «General production expenses», «General business expenses», «Auxiliary production» are keeping. Costs are collected in different accounts, depending on whether it can be attributed to the finished product.

Outsourcing Benefits

Additional difficulties for accountants are created by the fact that the service sector requires diverse knowledge. As it is difficult to finding a qualified accountant, many companies prefer to conclude a contract for accounting outsourcing. Specialized companies will not only help to keep records in the service sector but will also provide legal support. Features distinguishing the service sector in terms of accounting:

  • the possibility of applying different types of taxation;
  • significant amount of costs;
  • lack of work-in-progress.

VALEN specialists have extensive experience in providing accounting services for large and small enterprises. We cooperate with international corporations, foreign firms, and local businesses. Our support will allow to avoid difficulties during inspections.

You can order legal support or consult with specialists by phone: +7 (495) 7-888-096. We are also waiting for you at our office in Moscow.

Author of the article
Accounting in the service sector
Valentina Khlavich
Managing Partner
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