Introduction to Services
Revenue from contracts for services might also be identified in stages. Assume a consultancy business has a contract to install a new computer system for the government that will take various years to complete. Revenue can be identified before the contract is finished as long as the contract can be split into stages and the specific stages of completion can be measured reliably. This is in fact similar approach as that employed in the construction contract as mentioned earlier.
Occasionally a continuous service is given to a customer; for instance, a telecommunications business might give open access to the internet to those who subscribe to the service. In this example, revenue is generally recognised as the service is rendered. Advantages from giving the service are generally supposed to flow evenly over time and so revenue is identified evenly over the subscription period. In which it is not possible to split down a service into specific stages of completion, or to suppose that advantages from giving the service accrue evenly over time, revenue will not generally be recognised until the service is fully completed. The work completed through a solicitor on a house purchase for a client would generally be one such instance.
While a service is given, there will generally be a timing variation among the recognition of revenue and the receipt of cash. Revenue for giving services is frequently recognised before the cash is received, like with the sale of goods on credit. Though, there are occasions while it is the other way around, generally because the business demands payment before giving the service.
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