How to Compute Profit for a Service Provider Company
January 30, 2009 by Admin
Filed under Accounting
A service company is one that sells services to its clients. Different from manufacturing and trading companies, it provides services or works of labor rather than tangible products to its customers. Accounting firms, law firms, schools, janitorial and hotel companies are some of examples of service provider companies. As the operation of this kind differs from the others, the computation and preparation of its statement of operation also differs. Since a service company sells services, we need to compute its cost of services, as computing cost of goods sold in a manufacturing and trading firms which sells goods to its costumers. But in all kind of firms, we compute direct and indirect costs to determine gross and net profit.
The revenues of a service company consist of all its receipts and receivables from rendering services during the period less all refunds associated from them. Unearned revenues collected during the period are not included because they are not related to the services rendered during the period. This concept is called accrual basis. Read more
