Question

In the first three chapters, we looked at accounting from the perspective of a service type company. In chapter 4, we looked at accounting from a merchandiser or retail operation. What are some differences on the financial statements between a service company and a merchandising business? What are some specific accounts that a merchandiser would have that a service company would not have?

Answer 1

• The main difference between the service company and merchandising company is Inventory in Merchandising Company we maintain Inventory but in a service company, we don't have inventory to maintain
• Goods are sold to the customers in Merchandising company, but in service, the company do not
• In service-based companies, we do not record an account named Cost of goods Sold Whereas in Merchandising companies we record Cost of goods Sold and we record it as Expense referring for the purchase of Inventory.e
• In a service-based company, we can observe a large decline in the net income because of the decrease in Revenue, rather than an increase in Expense, but in Merchandising Company the decrease in revenue will occur due to increase in Expenses
• While coming to the balance sheet for both companies the balance sheet is mostly similar to small differences.
• One of the main differences is in merchandising company we have inventory in the balance sheet on the current assets side but in a service company, we don't have inventory.
• Another difference is merchandising company has accounts payable as it will purchase the inventory from the wholesale market on credit basis but in a service company, it may have accounts receivable as it will provide service to the customer and can receive the revenue afterward

Some of the specific accounts that do not have in a service company and has in the merchandising company are

• Inventory
• Cost of Goods Sold
• Accounts payable

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