When you\u2019re purely in the field of selling services rather than goods, you clearly don\u2019t have physical inventory, but you still sell something. That something is effectively time and what\u2019s being done within the time. Of course to some extent it\u2019s also materials used in the process, but they are marginal to the situation. So, as such your expenses are mostly employee related, but also services bought from third parties that are supportive to the end service you\u2019re providing. <\/p>\n
Now whilst with the employee related expenses the accounting is simple – they are charged to expenses when the employee has done his or her job – normally as a monthly wage, with services bought however the accounting is a bit more tricky. Let\u2019s say that you\u2019re providing commercial campaigns (i.e., TV commercials, etc.) for big companies and for that you sometimes need to buy preparation work (i.e., the TV commercial material) that\u2019s going to be launched at a later date. Just to make sure you\u2019re going to meet all deadlines, you\u2019ve already asked the supplier to prepare the video. Now that you receive the video, you also receive an invoice for it. The accounting entry for this transaction is as follows:
\n
\n Db: Work in progress (i.e. Inventory)
\n Cr: Payables to suppliers <\/p>\n
Note here that this invoice does not go directly into expenses and the reason for this is simple – all expenses should be recognized in the same period the income they relate to is recognized. As such, the TV commercial you bought from the third party should stay in inventory until the actual sale is made to your customer. The entries then are as follows:<\/p>\n
Db: Cost of services rendered
\n Cr: Work in progress (i.e. Inventory)<\/p>\n
So as you see, the general idea behind the services is really the same as with goods. They are charged into expenses at the time of the sale and not sooner. The reason for us saying it\u2019s trickier with the services is simple – they are just often seen as simple services acquired during everyday business and not seen as something just purchased for the sale and nothing else. <\/p>\n","protected":false},"excerpt":{"rendered":"
When you\u2019re purely in the field of selling services rather than goods, you clearly don\u2019t have physical inventory, but you still sell something. That something is effectively time and what\u2019s being done within the time. Of course to some extent it\u2019s also materials used in the process, but they are marginal to the situation. So, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25,35],"tags":[],"class_list":["post-2804","post","type-post","status-publish","format-standard","hentry","category-1-basic-accounting","category-1-7-basic-entries"],"aioseo_notices":[],"_links":{"self":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/2804","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/comments?post=2804"}],"version-history":[{"count":3,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/2804\/revisions"}],"predecessor-version":[{"id":2867,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/2804\/revisions\/2867"}],"wp:attachment":[{"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/media?parent=2804"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/categories?post=2804"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/tags?post=2804"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}