Service vs Trading Business: How Your Accounting Needs Differ

Not all SMEs are alike. Service businesses sell expertise and labour — think consultants, IT support firms or training providers. Trading businesses (sometimes called product‐based or merchandising companies) buy goods from suppliers and resell them to customers. Each model has a different operational footprint, and those differences ripple into how you track revenue, costs and profits in your accounting software. Here’s a quick guide to the key distinctions and what to watch out for when choosing an accounting solution like ABSS/MYOB or SQL Account.

1 . Inventory vs. No Inventory

• Trading businesses manage stock.  They must record the cost of buying goods, store and track inventory levels, and adjust for purchase and sales volumes. Overstocking ties up cash and risks spoilage; under‑stocking leads to lost sales. These businesses also need to calculate cost of goods sold (COGS) to understand gross profit.

• Service businesses have no stock.  There’s no need to monitor units on hand or pay storage costs. Instead, the focus is on the labour and overhead costs associated with delivering your expertise. Inventory modules are unnecessary if you price work by project or milestone.
  

Software considerations: A trading business should look for accounting software with robust inventory and stock‑costing functions, such as item codes, reorder alerts and purchase orders. Service firms can skip inventory modules entirely and focus on project or job costing. ABSS Premier and SQL Account let you create multiple company databases and turn inventory features on or off, so you don’t pay for tools you don’t need.

2 . Recognising Revenue

• Trading businesses: Revenue is recognised when goods have been packed and shipped — that is, when the company has fulfilled its obligations under the sale contract. The invoice may be raised at order confirmation, but the income is only recognised when the product is delivered.

• Service businesses: Revenue is recognised when the service has been performed. Because services are intangible, income is usually tied to project milestones or the completion of agreed deliverables.
  

Software considerations: Your accounting system should allow flexible revenue recognition. In ABSS/MYOB, you can set invoice layouts for products versus services and run various reports. SQL Account also supports service and trading invoice types with separate tax and account codes.

3 . Expense Tracking

• Trading businesses have many direct costs.  In addition to raw materials, they incur packaging, shipping, storage, manufacturing energy, rent for production space and equipment maintenance. These costs feed into COGS and inventory valuation.

• Service businesses focus on labour and overhead.  With no physical goods to produce, most expenses are wages, subcontractor fees, software licences and office or travel costs. Many service companies operate remotely or from home, lowering expenses further.
  

Software considerations: Trading firms need modules that handle inventory purchasing, supplier deposits and integration with point‑of‑sale or e‑commerce platforms. Service businesses benefit from job costing and payroll integrations.

4 . Financial Reporting & Chart of Accounts

• Trading businesses: Financial statements must show COGS separately and provide details of materials, production, packaging, marketing and distribution. Their chart of accounts needs sections for multiple product lines, stock adjustments and sales of sales of goods.

• Service businesses: Reports are simpler. Income statements list operating costs and service revenue without an inventory section. Charts of accounts emphasise labour costs rather than stock.
  

Software considerations: Look for packages that let you customise account codes. ABSS/MYOB and SQL Account allow separate account categories for service revenue versus product sales and provide templates for COGS and project or job‑costing. Multi‑company features (up to five databases) allow you to keep separate books for each line of business.

5 . Income Statement & Business Model Differences

Investopedia summarises the high‑level differences clearly: merchandising companies buy and resell tangible goods, while service companies primarily sell services. Income statements vary because of the existence of inventory — trading companies incur COGS, while service companies focus on fee income and labour costs. This means KPIs like gross profit margin, days inventory outstanding (DIO) and stock turnover apply to trading businesses. Service firms instead watch utilisation rates and labour margins.

Choosing the Right Software

When evaluating accounting software, ask these questions:

• Do you sell products, services or both?  If you sell goods, prioritise an inventory system that handles stock movements, purchase orders, cost tracking and multi‑location control. If you’re service‑only, choose software with job‑costing features and skip inventory modules to save on complexity.

• How many entities or projects do you manage?  ABSS and SQL Account let you create multiple company databases — ideal if you run separate service and trading entities. Most cloud subscriptions allow only one company per subscription.

• Do you require on‑premise control or cloud flexibility?  On‑premise deployments (with Remote Desktop access) give you full ownership of your licence and database, and you can use the same software offline. Cloud options offer subscription pricing and automatic updates but do not give you direct control of the database; instead, you export reports and data before canceling.

📌 Final Thoughts & Next Steps

Service and trading businesses have different accounting rhythms. The former track labour and skills; the latter manage stock and supply chains. The right software should match your operations rather than force you into a one‑size‑fits‑all model. ABSS/MYOB and SQL Account are flexible enough to handle both: you can enable inventory modules when you need them and focus on billing and project costing when you don’t.

Still not sure which features you need? Message Apscom Solutions for a quick chat. We’ll help map your business model to the right accounting solution and configuration so you can stop wrestling with spreadsheets and start focusing on growth.