Merchandising Operations and the Multistep Income Statement

Chapter 6: Merchandising Operations and the Multi
Income Statement
Wednesday, October 5, 2022 4:13 PM


• Operating Cycles
- Operating Cycle: a series of activities that a company
undertakes to generate revenues, which ultimately lead to
collecting cash




- Service Companies: a company that sells services
- Follow simple operating cycle: sell service to customers ->
collect cash from them -> use that money for operating
expenses
- Merchandising companies: a company that sells goods
- Cycle beings with buying products called inventory -> sold
to customers -> collection of cash -> used to pay for
operating expenses and buying more inventory
- Retailers: when merchandising companies sell directly to
individual consumers
- Wholesalers: when merchandising companies sell their
inventory to retail businesses for resale to consumers
- Differences in reporting financial results
- Balance sheet: Merchandisers report inventory as a
current asset, whereas service companies are more likely
to report supplies
- Supplies are goods acquired for internal use
- Inventory includes goods acquired for resale to
customers
- Income statement: service companies earn revenue from
services, merchandisers earn revenue from sales
- Merchandisers report an expense called Cost of Goods
Sold (total cost of all goods to customers during the
period)
• Inventory Systems
- Inventory: reports the merchandiser's total cost of acquired

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