Service revenue is not classified as an asset, liability, or equity on its own. Instead, it is considered a part of the income statement, representing the income earned from providing services to customers.
When a business provides a service, it records the revenue as it is earned. This earning increases the company’s total income, which in turn can affect the equity section of the balance sheet, specifically retained earnings. Retained earnings are part of equity that reflects the accumulated profits of a company that have not been distributed to shareholders.
If a service is paid for in advance, the business will record the amount as deferred revenue, which is a liability until the service is actually performed. Once the service has been delivered, that liability is reduced, and the revenue is recognized in the income statement.
In summary, while service revenue itself is not classified within the asset, liability, or equity categories, it impacts equity through retained earnings and can result in a liability if payment is received before the service is rendered.