merchandising companies examples This is a topic that many people are looking for. newyorkcityvoices.org is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, newyorkcityvoices.org would like to introduce to you How Do Service, Merchandising, and Manufacturing Companies Differ, Part 1 . Following along are instructions in the video below:
“Next learning objective is to describe the differences between service merchandising and manufacturing companies. Before before we go further let s go over some simple. But critical vocabulary cost versus. Let s say you have a company that sells iphones the store is called iphones galore iphones galore purchases an iphone for 400 and wants to sell it for 500 so the first question is what is the cost the cost is 400.
The next question is what is the price. The price is 500. So it s critical to understand that cost is the amount i phones. Galore pays for something and price is the amount.
I phones galore. We ll sell it for and finally price is sometimes called sales price now. We ll discuss the differences between service merchandising and manufacturing companies. We ll start off with the easiest to understand service companies service companies like larry s lawn mowing service sell their time skill and knowledge examples include.
Accounting firms schools. Hospitals daycare and landscaping businesses like larry s business..
Accounting for service companies is simplest of the three now let s look at the income statement and balance sheet of a service company. So now we re gonna look at the income statement balance sheet of a service company like larry s lawn mowing service. Remember that for service companies the income statement formula is simply revenue minus expenses. Equals net income net income is also known as profit.
You may be asking yourself why is the bottom line on this income statement. Operating income instead of net income well operating income is the income you generate through your operations. This is your revenue from sales of products and services performed in your daily operations minus. The expenses.
It takes to produce and sell them operating income does not take into consideration things like income from investments expenses from financing or taxes or one. Time extraordinary expenses or income items. Such as the gain on the sale of an asset for our purposes. Is to simplify things you can think of operating income as similar to net income now notice this income statement is a single step income statement.
All that means is the formula is simply revenue minus expense notice. There is no cost of goods sold because this service company sells services not goods remember goods also means products as for the balance sheet by the way..
We are only looking at the asset section. So we can save some space notice. There is no inventory account. Why isn t there one well larry sells services is not products.
So there s no need for an inventory account like merchandisers need now let s talk about merchandising companies merchandising companies resell products they previously bought from suppliers. Examples include target walmart and grocery stores like safeway. So on this slide. The merchandiser is iphones galore they buy iphones from apple.
The manufacturer of the merchandise when they might buy the merchandise this increases the merchandise inventory account. This is an asset account on their balance sheet. Then when the customer buys the merchandise. Which is iphone the inventory account is reduced and the customer takes possession of the merchandise.
So it s important to understand the flow goes from manufacturer to merchandiser to customer now let s look at the income statement balance sheet of a merchandiser like iphones glory on the left are the financial statements of a service company for comparison remember service companies do not sell products so they do not need a cost of goods expense excuse. Me..
They do not need a cost of goods. Sold expense. Account or an asset account called inventory. Now let s first concentrate on the income statement of a merchandiser like iphones lure the merchandiser that sells iphones so on this income.
Statement what is the largest. Expense it s cost of goods sold for 3600. Remember cost of goods sold is often just called cogs ceo gs. Because cogs is usually a merchandisers largest expense.
It s listed first if you forgot what cost the gold if you forgot what costs of goods sold means. It s name explains it all it s the cost of the merchandise that the merchandise your soul remember cost means it s the price that the merchandise paid for it it s not what the customer paid so once we subtract cogs from sales revenue. We get gross profit a simplified. Explanation this income statement is the company sold a product for.
7600 that had that had earlier paid 3600. For or perhaps..
They more realistically they sold many products for a total of seven thousand six hundred dollars and those products had earlier cost them a total of three thousand six hundred dollars to purchase then on the income statement. After that we subtract selling and administrative expenses. These would include expenses such as salaries of the salespeople insurance for the store and utilities for the store. Let s look at the balance sheet at the bottom of the screen of course.
We re only looking at the asset section. To save space. Notice that there is an asset account called merchandise inventory. What does this represent this is the amount of merchandise on the company shells on december 31st.
We say december 31st. Because that s the date on the balance sheet. So merchandise inventory is the unsold merchandise this means they have some merchandise sitting on the shelves that has not yet been sold how much merchandise did the company sell well to find that answer you d have to look at the income. Statement that s the cost of goods sold 3600.
So remember inventory and cogs are always listed at its cost to the merchandiser not the sales price they ” ..
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