Financial Statements for Trading Business and Service Business


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Definition of Service Business

Service business is a business that sells services directly to consumers or other businesses. It also can be defined as a commercial enterprise that provides work performed with good working attitude by an individual or team in order to provide maximum benefits to its customers.

Sometimes, services are hard to discriminate because they are closely associated with goods. For instance, in the treatment fields, the combination of diagnosis and administration of medicines. No transfer of possession or ownership takes place when services are sold and they cannot be stored or transported, and instantly delicate. Moreover, there is a very complicated problem to market a service business because people are selling an immaterial idea rather than a product.

However, starting this kind of business can be less costly than starting one that makes and sells products. Depending on the business, less capital investment may be required. To cite an example, a computer support technician could easily work out of a private vehicle, traveling to clients to provide support services.

Examples of service business are accounting, banking, finance, landscaping, education, insurance, medical treatment, and transportation services. A lawyer, for example, might prove a great success rate with specific kind of cases to attract customers. Furthermore, a restaurant might pride itself on providing customer service with very high quality which makes diners feel like honored guests. In all of these cases, a service have been provided to people, not a product, whether they are getting treatment for a medical problem or having a high quality service in a restaurant.

Definition of Trading Business

Trading business can be defined as a cHYPERLINK ""ommercial transaction that involve the sale and purchase of a good, service, or information. Money as a medium of exchange has allowed trade to be conducted in a method that is much simpler and effective compared to earlier forms of trade, such as bartering. Bartering is a type of business that trade goods or services without exchange of money. At the same time, it also consists of abundance disadvantages such as unable to evaluate the value of products that they want to exchange and cause some misunderstandings.

As a business, trading involves constant research, evaluation and discipline. There are no guarantees in the trading business, and you could work a 40-hour week and end up losing money. Anyone who consider carried out trading business should make sure that they have both the personality and financial resources.

The idea of trading for a living is appealing to many people: you get to be your own boss, set your own schedule and work from home while enjoying almost unlimited income potential. There are large different from many other jobs because no degrees, special training or experience is required. Due to these factors, people often fail to acknowledge or realize the financial, emotional and time commitments that are required to build a successful trading business. Normally, about 90% of day traders fail within the first year. This is because there is no method to eliminate risk in trading and no trading system that wins 100% of the time. However it will take a long time to get rich with a small trading account.

One of example of trading business is Tesco. It sells the product to the customers and earn the money.

Income Statement of Trading Business

Income Statement for XYZ business for the Period Ending 31st of December 2010




167 000

( - ) Returns inward

( 1 000 )

166 000

( - ) Cost of goods sold

Opening finished goods

12 000


108 000

120 000

- Closing inventory

19 500

100 500

Gross profit

65 500

( - ) Sales and distribution expenses


13 000

Carriage costs

5 000

Vehicles used for deliveries to customers

3 500

21 500

44 000

( - ) Administration expenses

Cars of administrative car

7 800

Other administrative expenses

5 500

13 300

Net profit

30 700

Income Statement of Service Business

Income Statement for XYZ business for the Period Ending 31st of December 2010




94 600

( - ) Expenses


25 000

Water and electricity

16 000


7 300

Advertising cost

1 000

Tax expenses

3 414

Telephone and Internet

6 500

Printing and stationery


59 714

34 886

The Different in Preparing Financial Statement for Trading Business and Service Business

As we know, trading business can be defined as a cHYPERLINK ""ommercial transaction that involve the sale and purchase of a good, service, or information to earn money whereas service business can be known as business that sells services directly to consumers or other businesses. Hence, there are huge differences in preparing financial statement for trading business and service business.

Inventory is the raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale. Inventory represents one of the most important assets because the turnover of inventory can become the primary sources of revenue generation and subsequent earnings for the company's shareholders/owners. Therefore, only the financial statement of trading business will record the inventory. Trading business sales goods to earn money so there will have inventory at the end of the year. However, there will no inventory recorded in the financial statement of service business because it sells services directly to customers and the true value of what you provided in your business is a thought or idea rather than a tangible product. Obviously, this is one of the different between the financial statement of trading business and service business.

Furthermore, think of companies involved in investment banking, insurance, consulting, accounting and advisory and financial planning. Those companies sell their services to earn money only. In a service company's income statement, you typically see items, such as revenues, cost of services, sales and marketing and reorganization costs. You also note things like interest expense, fee income and provision for income taxes -- or income taxes, for short.

For trading business, in the company's income statement, you see things like sales revenue, product rebates, cost of goods sold, storage, shipping and hazardous material insurance and any cost relating to the conveyance, maintenance and handling of merchandise.

Besides, carriage cost will not be recorded in the financial statement of service business. This is because there are no any goods that need to carriage to the customers. Service business only provides services to earn money. So that in this case, expenses of vehicles used for delivers to customers can be cancelled out too. However, carriage cost and the expenses of vehicles used for delivers to customers will be recorded in the financial statement of trading business.


TSP Enterprise Invoice No: 300892 202, Jalan Bintang Date: 30 May 20X9 Kuala Lumpur Telephone No: 03-23334242

To: GT Enterprise 333, Jalan Templer Kuala Lumpur Account No: 003322

No. of units


Unit Price ( RM )

Total ( RM )



Cases of Power puff pen

Boxes of Digimon eraser

Less 10% trade discount








Date of delivery: 1/6/20X9 Terms: 5% cash discount within 30 days otherwise net 60 days Your purchase order No: 1123

"" Credit Note

TSP Enterprise 202, Jalan Bintang Kuala Lumpur Telephone No: 03-23334242

To: GT Enterprise 333, Jalan Templer Kuala Lumpur Account No: 003322

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