Service company

Definition

A service company is a business that provides intangible products or services to customers, such as consulting, maintenance, or professional expertise. Unlike merchandising companies, service companies do not sell physical goods.

5 Must Know Facts For Your Next Test

1. Service companies recognize revenue when the service is performed, not when cash is received.
2. The primary costs for service companies are related to labor and overhead rather than inventory.
3. Service transactions do not involve cost of goods sold (COGS) because there are no physical products sold.
4. Financial statements for service companies typically include revenue from services and various operating expenses but lack line items like inventory or merchandise purchases.
5. Accounts receivable for service companies arise from billed services that have yet to be paid by clients.

Review Questions

Related terms

Merchandising Company:

A business that purchases and sells physical goods.

Cost of Goods Sold (COGS): The direct costs attributable to the production of the goods sold in a company.

Accounts Receivable:

Money owed to a company by its debtors for delivered services or goods.