Accounting for Service Fee Revenue · Chapter 6

Key Concepts

Service fee revenue is recorded when services are provided to a customer — whether the customer pays immediately or on credit. At the end of the financial period, service fee revenue is closed to the Income summary account:

Account	Debit	Credit
Service fee revenue	Service fee revenue	Income summary

How to Remember

A service business earns Service fee revenue — never "Sales revenue." Recognise it when the service is provided, not when the customer pays. Close at year end: Dr Service fee revenue / Cr Income summary.

Worked Example

Scenario: Harbour Barbers provides grooming services. The following transactions occurred in April 20X5.

Date	Transaction
7 Apr	Provided grooming services for cash, $280
14 Apr	Provided corporate grooming services to Faizal on credit, $640
31 Dec	Financial year end — close account

Record cash service (7 Apr 20X5)

Journal

Date	Particulars	Dr ($)	Cr ($)
20X5
7 Apr	Cash in hand	280
	Service fee revenue		280

Record credit service (14 Apr 20X5)

Journal

Date	Particulars	Dr ($)	Cr ($)
20X5
14 Apr	Trade receivables — Faizal	640
	Service fee revenue		640

Closing entry (31 Dec 20X5)

Journal

Date	Particulars	Dr ($)	Cr ($)
20X5
31 Dec	Service fee revenue	920
	Income summary		920

Common Mistakes

Using "Sales revenue" for a service business — A service business earns Service fee revenue, not Sales revenue. Using the wrong account name loses the mark.

Recording revenue when cash is collected, not when the service is provided — Revenue is recognised on the date the service is performed, regardless of when the customer actually pays. Even if a customer pays a week after their appointment, the revenue is still recorded on the appointment date.

Check Your Understanding

Shiok Paws Pet Grooming provides a grooming service on 20 March but receives payment on 1 April. On what date is service fee revenue recognised?

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20 March — when the service was provided.

True or False — A service business uses the Sales revenue account to record income from its main services.

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False. A service business uses the Service fee revenue account to record income from the services it provides.

Which account is debited in the closing entry for Service fee revenue?

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Service fee revenue (Dr Service fee revenue, Cr Income summary).