What distinguishes a merchandise business from a service business?

What distinguishes a merchandise business from a service business?

Objectives

Be acquainted with the differentiation between merchandise business and service business

How merchandise business differs from service business?

Service business:

      Involves providing services to costumers

      Revenues are reported as revenue or fee earned

      Operating income = Revenues – Operating expenses (Warren, p.126)

        Income before taxes   =      Operate income (+)(-) Other income/expense

       Net income = Income before taxes – Income taxes

               (Warren,p.126)

Merchandise business:

      Involves the buying and selling of merchandises

      Revenues from sold merchandises less returns or discounts are reported as Net sales

      Gross profit = Net sale – Cost of merchandise sold  (Warren, p.127)

How merchandise business  & service business differ?

      The way they operate

      Balance sheets elements (merchandise inventory)

      The way they prepare Income statements                        

References

      Warren, S. C.( 2009).Survey of accounting.

   4th ed. Ohio: South-Western Cengage learning