Respond to the following in a minimum of 175 words:
In comparing the accounts of a merchandising company with those of a service company, what additional accounts would the merchandising company likely use, assuming it employs a perpetual inventory system? Which financial statements would these accounts appear on?
RESPOND TO CASSY AND CRISTI POSTS BELOW BE CONSTRUCTIVE AND PROFESSIONAL WITH ANSWER.
The different accounts that a merchandise company would likely use that service companies would not use are net sales, cost of goods sold, and gross profit. Service companies offer just that, services. Merchandise companies offer products that they purchase and then turn around and sell them for profit. Merchandise companies notate on their balance sheets their merchandise inventory, which service companies do not. On the income statement for merchandise companies, sales and costs of goods accounts appear, whereas on the service companies, they do not. The reason for this is because service companies are just service providers. Parts or products that they use when providing service is usually generated in with their costs, or can be found as a separate charge on the invoice, but generally are not sold individually.
A Merchandising Company sells goods, a Service Company provides a service. There are additional costs and expenses that a Merchandising Company has over a Servicing Company. A Servicing Company’s Income Statement will show Revenue accounts minus the Expense accounts to equal Net Income. The Income Statement of a Merchandising Company will have Net Sales minus the Cost of Goods Sold account this will show the Gross Profit account. From there the Expense account is subtracted from the Gross Profit account the give us the Net Income. Merchandising Company accounts require more input than a Servicing Company.
The Balance sheet of a Merchandising Company will have an additional account called Merchandising Inventory. This inventory account is the product the company has not sold yet, hence the term inventory. These inventory accounts are asset accounts and when purchases are made to increase the inventory the journal entry debits the merchandise inventory account and credits either the cash account or the accounts payable, this all depends on what was used to purchase the merchandise, credit or cash. If a Merchandising Company is using a perpetual inventory system, there will be numerous journal entries as the accounts affected by sales are updated after each and every sale. Some of those accounts are the cash accounts, accounts payable and the cost of goods sold account.