Service company accounting is actually almost the same as accounting in general. What makes it different is that there is no control over the merchandise cycle in general. Let’s get to know service company accounting in more depth, here is a more complete explanation. Check them out!
Accounting and Service Companies
According to Phillip Kotler, a service company is a company that offers an element that is intangible but whose benefits can be felt. Apart from that, in this transaction there was no transfer of ownership. If money has been paid to purchase services, the buyer no longer gets additional items that he can take home.
Meanwhile, according to William J. Stanton, who is also the author of a book entitled Fundamentals of Marketing, service companies are companies whose job is to sell various services, where services are something that can be identified separately and do not have a concrete form, the services themselves are offered to meet a person’s various needs.
These services can be produced using a variety of tangible and intangible objects. Service companies are companies that sell various intangible products or services with the main aim of making a profit. The service company itself carries out the following business activities:
- Businesses in educational services or courses such as language courses, schools, tutoring
- Lodging services such as hotels, dormitories, mess.
- Services at communication service providers such as television, cellular, radio.
- Body care services such as spa and salon services
- Professional services such as accountants, doctors, financial consultants, and even tax consultants.
- Travel services such as selling travel packages, buses, and so on.
- Repair and installation services such as cell phone repairs or workshops.
Example of a Service Company
According to William J. Stanton, who also wrote a book entitled Fundamentals of Marketing, he explains that service companies are companies that sell services, where services are something that is intangible but can still be identified separately, services are also used to meet the various life needs of consumers. Examples of service companies in Indonesia that are registered on the IDX include:
- Property & Real Estate, including Agung Podomoro Land Tbk, Alam Sutera Reality Tbk, Bekasi Asri Pemula Tbk, Bumi Citra Permai Tbk, Bekasi Fajar Industrial Estate Tbk, Bhuawanatala Indah Permai Tbk, Bukit Darmo Proerty Tbk and Sentul City
- Construction & Building Services Companies, including Acset Indonusa Tbk, Adhi Karya (Persero) Tbk, Totalindo Eka Persada Tbk, Duta Graha Indah Tbk, Nusa Raya Cipta Tbk, Paramita Bangun Sarana Tbk, Housing Development (Persero) Tbk, Total Bangun Persada Tbk, Surya Semesta Internusa Tbk, Wijaya Karya (Persero) Tbk, Waskita Karya (Persero) Tbk
- Infrastructure, Utilities & Transportation, including Perusahaan Gas Negara (Persero) Tbk, Rukun Raharja Tbk, Cipta Marga Nusapala Persada Tbk and Jasa Marga Tbk
- Telecommunication Services Companies, including Telekomunikasi Indonesia Tbk, Indosat Tbk
- Transportation Service Companies, including Pelayaran Nasional Bina Buana Raya Tbk, Blue Bird Tbk, Capitol Nusantara Indonesia Tbk, Cardig Aero Service Tbk and Garuda Indonesia (Persero) Tbk
- Financial Services Companies, including Bank Bukopin Tbk, Bank Mestika Dharma Tbk, Bank Nusantara Paahyangan Tbk, Bank Yudha Bhakti Tbk and Bank Jabar Banten Tbk\
- Financing institutions, including Buana Finance Tbk, BFI Finance Indonesia Tbk and Indomobil Multi Jasa Tbk
- Hotels, Restaurants & Tourism, including Bayu Buana Tbk, Bukit Uluwatu Villa Tbk, Fast Food Indonesia Tbk and Saraswati Griya Lestari Tbk
- Health, including Mitra Keluarga Karya Sehat Tbk, Prodia Widyahusada Tbk, and Sarana Meditama Metropolitan Tbk
- Computer services and other facilities, including Multipolar Technology Tbk
With many companies providing and selling services produced by professional activities, there are also many management that must meet general requirements.
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Service Company Character
After discussing the many definitions of service companies above, it can be concluded that this company has various characteristics, including:
1. Selling Services as the Main Activity
A service company is not a company that produces a product, therefore its main activity is to offer and sell the services it provides.
2. Not providing products in physical form
Services themselves have an intangible form so service companies certainly do not sell products that can be seen or stored. Even though the product cannot be seen, the benefits can be felt by consumers or users.
3. Results cannot be compared
The results of business in a service company are also very subjective, they depend on customer satisfaction. So, the results of the business cannot be equal to all consumers. The reason is that the measure of satisfaction for each person is different. Apart from that, the quality of employees also depends on their health, psychological conditions, and so on.
For example, employees with morning to evening shifts will definitely have different service, service in the morning will definitely be better than service provided in the afternoon when the employees are tired, apart from that there is no Cost of Goods Production. The characteristics are also very different from other types of service companies. where of course there are no sales or cost of production in it.
Service companies also do not carry out various production activities therefore they do not need raw materials for production. This will then affect the financial reports, where in service companies there is no information about the cost of production and sales.
In the financial reports themselves there are various forms such as profit and loss reports, reports of changes in equity, reports of changes in financial position, and many more.
4. There are no general price standards
Customer needs generally will always vary depending on the desires and complaints they have. So the price of services cannot be fixed and must be adjusted to each consumer’s needs.
5. Service Company Accounting Cycle
As with various other types of companies, service companies also require various financial reports. In designing financial reports, it is very important to understand the accounting cycle of service companies. In this way, the resulting financial reports will be good and correct. The following is the accounting cycle for a service company:
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Stages of the Service Company Accounting Cycle
Every transaction recording requires main components such as purchase or sales notes, transaction value including taxes, income or costs, control of debts or receivables. Using service company accounting software will help make recording these transactions easier. Below are several pictures of the input form and ledger.
1. Conduct transaction analysis
The first step is of course to analyze transactions that have taken place in a period. The paired journal accounting system is a tool used to analyze transactions.
In using this system, it is very necessary to analyze a transaction, the way is to understand the explanation of the transaction to determine whether the transaction is included in the asset, liability, capital, income or expense post, then determine the effect of the transaction on these posts, increase or decrease. Follow credit debit rules to record transactions.
Examples of document sources that are often encountered are receipts, sales invoices, purchase invoices, cash receipts, working time cards, and so on.
2. Make an Accounting Journal
Journaling is the activity of writing down types of accounts accompanied by the amounts and evidence of transactions that have been collected previously, to then be recorded in a daily journal which is also known as a general journal. The next step in creating a cycle is to make a journal entry for each transaction.
If you use a cashier or point of sale application, it usually helps companies get through cycles 1 and 2, but companies also still monitor their expenses. Record transactions in a journal in detail based on the data obtained to facilitate the next cycle.
The choice between accrual and cash accounting will determine when transactions are officially recorded. Keep in mind, accrual accounting requires matching revenues with expenses so both must be ordered at the time of sale. Meanwhile, cash accounting requires transactions to be recorded when cash is received or paid. The next option is single entry and double entry recording.
Single entry is recording financial transactions only once with transactions that affect the cash account. Double entry is recording financial transactions twice on debit and credit to produce a profit and loss or balance sheet.
3. Posting Accounting Transactions from the Journal to the Ledger
The next step is to post all transactions to the general ledger. The ledger itself is a collection of bookkeeping accounts, each of which is then used to record information about a particular asset. To make it easier, classify financial transaction data based on date, transaction type, account number and name.
In this way, all company transactions in the journal which are also connected to cash will be entered into the cash ledger. After that, calculate the balance of each account in the ledger to find out the total account value.
4. Making a Trial Balance
Preparing a trial balance or balance is one of the service company accounting cycles that must be carried out. The trial balance itself functions to prove that the credit and debit sides are balanced. If the number of both is balanced it will also reduce errors in data input. Ways to make your own trial balance include copying or quoting the balances of all the accounts in the ledger. Therefore, calculating the ledger balance will play a very important role in this stage.
5. Make an Adjusting Journal
The next step is to prepare an adjusting journal. Making adjusting journals is done if there are errors in journaling and posting or ensuring costs and income have actually been recorded in the right period. If at the end of the accounting period, there are transactions that have not been recorded, there are transactions that are wrong or need to be adjusted, then they are recorded in an adjusting journal.
Adjustments are generally made periodically, usually when the report is being prepared. Then, you also have to create a second trial balance by moving the adjusted balance in the general ledger into the new trial balance. The balances of accounts in the general ledger are grouped into asset or liability groups. The balance between the asset and liability groups in the trial balance must also be balanced. For example, depreciation of equipment, unpaid rent and so on.
6. Make a Work Balance Sheet
A work balance is created based on adjusting journals and a trial balance. The work balance contains information regarding adjusting journals and trial balances which will produce information such as profit, loss reports, balance sheets, and various other information needed in preparing future financial reports.
7. Prepare Financial Reports
Financial Reports are one of the accounting cycles in which there are reports of profits, capital, losses, up to the balance sheet. The financial report itself is the main and most important result of an accounting cycle. Financial reports can also be prepared directly from a balance sheet, as well as working papers that have previously been adapted from a general ledger. These financial reports are also prepared such as profit and loss reports, balance sheets, cash flow reports and capital changes reports.
Accounting is the art of recording transactions, grouping accounts into ledgers, presented through financial reports.
8. Make a Closing Journal
After designing the financial report, you also have to make a closing journal which is usually made at the end of the accounting period. The closed account itself is only a profit and loss account or nominal account. The way to do this is by emptying all related accounts. The nominal account itself must be closed because this account can be used to measure the flow of resources that occurs in a period.
9. Make a Reversal Journal
A reversing journal is a journal that contains the stages of reversing several accounts that have been closed to restore their balances. This reversed estimate account then takes the form of a prepayment before maturity. This reversing journal is actually not mandatory to make, although in some transactions this reversing journal must be made.
10. Final or Initial Balance Sheet
What is referred to as the final or initial balance here is the final balance produced at the end of the period which will later be used as the initial balance in the next period’s accounting cycle.
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Types of Service Company Accounting Transactions
The differences and characteristics of companies cause differences in various transactions in a service company. Here are several types of service company accounting transactions that you need to know:
1. Purchase
This purchase transaction is an activity carried out to purchase a product. Service company purchasing transactions include purchasing work equipment and equipment. Everything is done to provide satisfaction to customers in terms of service.
Furthermore, service companies must also record various other transactions related to purchasing transactions. For example, in a beauty salon, you make a purchase in the form of a hairdryer, scissors, flat iron, hair vitamins at Toko Merah Merona, so after the purchase is made you must immediately record it in your business books.
2. Income
Like other companies, service companies also have various goals to gain profits. This income must be recorded in the cash and credit bookkeeping register. The income from the service company itself is obtained from the various services it provides. Therefore, service entrepreneurs will provide the best services to their customers.
3. Payment of Other Expenses
Apart from the expenses incurred when purchasing various necessities such as various supplies and equipment. Service companies also have various costs that must be paid, for example electricity bills, telephone administration, internet, and others.
4. Receipt of Receivables
Accounts Payable as gifts or sales made on credit to users. So that according to the agreement or policy of the consumer who will then pay off the payment within a certain period of time, company records are required in this case.
5. Capital Investment or Investment
When a service company is first established there must be capital contributions from investors and owners. All investment transactions must be recorded properly. Especially if the capital or funds come from another party.
Learn more about service company accounting, such as the accounting cycle and accounting records in the Service, Trading and Manufacturing Company Accounting book below.
That is the discussion regarding the accounting cycle for service companies. By implementing the correct accounting stages, business activities can then be carried out effectively and also help make more precise decisions because they are carried out based on real financial information. That’s the information, hopefully it’s useful!