I am having trouble finding the following:
What items appear on the merchandising company statements that don’t appear on the service company statements?
Why is there a difference?
Please help.
In merchandising company goods are purchased and sold with same form, however in service company services are charged for e.g. professional services like doctors, lawyers and accounting firms.
To find the items that appear on a merchandising company's statements but not on a service company's statements, you need to understand the key differences between these two types of companies.
A merchandising company is one that buys and sells products, while a service company provides services to clients.
The primary difference between merchandising and service companies lies in the nature of their revenue streams. Merchandising companies generate revenue from the sales of goods, whereas service companies earn revenue from the services they provide.
With this understanding, we can identify the items that typically appear on a merchandising company's statements but not on a service company's statements:
1. Cost of Goods Sold (COGS): COGS represents the cost of products that a merchandising company sells during a given period. This includes expenses like the cost of inventory, transportation, and handling. Since service companies do not sell products, they do not have COGS.
2. Gross Profit: Gross profit is calculated by subtracting COGS from the net sales of a merchandising company. Since service companies do not have COGS, they do not report gross profit.
3. Inventory: Merchandising companies require inventory to engage in their buying and selling activities. They keep track of the value of unsold products as an asset on their balance sheet. Service companies do not deal with inventory and, therefore, do not have this asset.
4. Accounts Payable: Merchandising companies receive goods from suppliers on credit and have to pay for them later. Therefore, they report their outstanding payables as accounts payable. Service companies may also have accounts payable, but they typically relate to expenses incurred in running their operations, not for purchasing products.
5. Sales Returns and Allowances: In the merchandising industry, customers may return or receive allowances on products they have purchased. This information is included in the financial statements to show adjustments to revenue. Service companies do not have this concept since they do not sell products.
The difference between these items is due to the fundamental differences in the business models of merchandising and service companies. Merchandising companies have additional transactions and accounts related to the buying and selling of products, which are not applicable to service companies that solely provide services.
By understanding the nature of the businesses and their revenue streams, you can determine the items that appear on merchandising company statements but not on service company statements.