Service company Income Statement and Balance sheet?
Ok, so this week while I was at work the lightbulb came on. In most of my accounting classes, Finance Classes; we always have used Income Statements and Balance sheets for manufacturing companies, wholesalers, and retailers. We never did a service company and even though in my position as a credit analyst most of our clients are manufacturing firms, wholesalers, and retailers. How do you approach a service based company as an Accounting firm, IT Services firm, Lawyers, etc. Like there are two-line items that I really question the most.
First the COGS. I know that one would be cost of revenue for a service since is a service firm; but what would the cost of revenue be? Like a Manufacturing firm; I know it would be raw materials since these are needed to create a product. In the wholesaler's income statement, it would be the products that they buy from the manufacturer and in the retailers it would be the products that they buy from a wholesaler.
Now the question is what do you put in such line item for a service firm? Let's says its a consulting firm run by only one person from home. All you really need is a computer, phone, office supplies, a printer, and maybe some software if your an accountant or a financial analyst. Now Maybe the cost of revenue would be your Utility bills like the internet, electric and office phone and cell phone bills. Your office supplies and any new accounting or finance software will be your SGA expenses?
Now, moving to the balance sheet what would you put there if it is a service firm? We know that manufacturers, Wholesalers and retailers have inventories, but what about a service firm what makes up their "inventories." ? Thanks in advance.
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