What is service revenue in accounting?

Service revenue is an important account in accounting that represents the income a company generates from providing services to customers. Service revenue is recorded on the income statement as a revenue account, typically under the operating section. This is because service revenue is considered a primary source of income for service-based businesses.

Service revenue is recognized when the service is completed and the revenue is earned, regardless of when the payment is actually received. This is based on the accrual basis of accounting, which recognizes revenues and expenses when they are incurred, rather than when cash is exchanged.

Service revenue is important in determining the financial performance and profitability of a business. It is used to calculate key financial ratios, such as the gross profit margin, operating profit margin, and net profit margin. These ratios help to assess the efficiency and effectiveness of a company's operations and management.

Overall, service revenue is a key metric in assessing the financial health and performance of a service-based business, and it plays a crucial role in financial reporting and analysis.