Sbe 504
Week 3: Merchandising Operations and Inventory
According to http://wiki.answers.com/Q/What_is_the_difference_between_a_merchandising_company_and_service_company
There are different ways in how two income statements are prepared. For example: the income statement (also known as P&L) of a merchandising company consists of Revenue, Expenses (related to the sales volume through the Cost of Goods Sold (COGS) and General & Administrative Expense (G&SA), which all result in Net Income. The income statement of a Service company consists of Service Revenue minus any Expenses related to that service, which results in Net Income. Another way to look at it is that inventory never leaves the balance sheet until it is physically sold to a customer, which transfers it to Cost of Goods Sold.
According to our text, because of the presence of inventory, a merchandising company has sales revenue, cost of goods sold, and gross profit. To account for inventory, a merchandising company must choose between a perpetual inventory system and a periodic inventory system.
The main difference is with the cost of goods sold. Service companies usually won’t have a cost of goods sold as they aren’t selling a product, they are selling an idea.
The fundamental difference between the income statement of a merchandising company and a service company is that in a merchandising company income statement, there is the inclusion of the cost of goods sold. This is because a merchant buys or spends money to pay for the goods, transport those goods to his/her sales venue, sometimes pays for storing such goods, and even pays to secure the goods. Hence, he/she has to account for the cost incured in acquiring, maintaining and selling those goods. On the contrary, a service company does not include cost of goods sold on the income statement because of the simple fact that the true value of what the business depends on is either an idea or a thought rather than a real tangible product.
According to http://wiki.answers.com/Q/What_is_the_difference_between_a_merchandising_company_and_service_company
There are different ways in how two income statements are prepared. For example: the income statement (also known as P&L) of a merchandising company consists of Revenue, Expenses (related to the sales volume through the Cost of Goods Sold (COGS) and General & Administrative Expense (G&SA), which all result in Net Income. The income statement of a Service company consists of Service Revenue minus any Expenses related to that service, which results in Net Income. Another way to look at it is that inventory never leaves the balance sheet until it is physically sold to a customer, which transfers it to Cost of Goods Sold.
According to our text, because of the presence of inventory, a merchandising company has sales revenue, cost of goods sold, and gross profit. To account for inventory, a merchandising company must choose between a perpetual inventory system and a periodic inventory system.
The main difference is with the cost of goods sold. Service companies usually won’t have a cost of goods sold as they aren’t selling a product, they are selling an idea.
The fundamental difference between the income statement of a merchandising company and a service company is that in a merchandising company income statement, there is the inclusion of the cost of goods sold. This is because a merchant buys or spends money to pay for the goods, transport those goods to his/her sales venue, sometimes pays for storing such goods, and even pays to secure the goods. Hence, he/she has to account for the cost incured in acquiring, maintaining and selling those goods. On the contrary, a service company does not include cost of goods sold on the income statement because of the simple fact that the true value of what the business depends on is either an idea or a thought rather than a real tangible product.