What items appear on the merchandising company statements that don’t appear on the service company statements?
Why is there a difference?
The items that typically appear on the merchandising company statements but not on the service company statements are related to the inventory and cost of goods sold.
In a merchandising company, the main source of revenue comes from buying and selling physical products or merchandise. Therefore, the company usually maintains an inventory of goods that it purchases from suppliers and sells to customers. As a result, the merchandising company needs to account for the cost of acquiring these goods and the cost of goods sold during a specific period.
On the income statement of a merchandising company, you will find the following items that don't appear on a service company statement:
1. Sales Revenue: This represents the total amount of revenue generated from selling merchandise to customers.
2. Cost of Goods Sold (COGS): This represents the cost incurred by the company to acquire the goods that were sold during the period. It includes the cost of purchasing the inventory, freight charges, and any other costs directly associated with getting the goods ready for sale.
3. Gross Profit: It is calculated by subtracting the cost of goods sold from the sales revenue. Gross profit indicates the profitability of the company's core merchandising activities.
The difference between merchandising and service company statements arises due to the nature of their business activities. Service companies primarily provide intangible services to customers, so they do not need to maintain an inventory or account for the cost of goods sold. Consequently, their statements focus solely on revenue generated from services provided and related expenses.
Understanding the distinctions between these types of companies' statements is essential for accurately evaluating their financial performance and making informed decisions.