ACC 556 SU Merchandiser vs Service Income Statement Discussion

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Distinguish  between the income statement of a service company and a merchandising  company. Identify at least two critical items of a multistep income  statement of a merchandising company that are useful to creditors.  Provide a rationale for your response.

Be sure to respond to your classmate’s (Ebony) posts: 

• A merchandising business’s financial statements differ from those of a service company in that they include inventory and cost of products sold. An organization that deals in merchandise buys and sells physical products. Service businesses sell more intangible services than physical things. This distinction must be reflected in the companies’ income statements and other financial accounts. Revenues, service costs, sales and marketing expenses, and restructuring expenses are all listed on a service company’s financial statement. The two forms of merchandising businesses are retail and wholesale businesses. Wholesale businesses offer products to retailers or other wholesalers, while retail businesses sell products directly to consumers.  A merchandiser’s operational cycle is the span of time between the product’s purchase and the  sales of that item. Service providers offer services to consumers or  clients in accordance with a particular area of knowledge or competence  rather than selling tangible items to generate revenue. Services are  sold by service providers, who frequently charge basic fees and hourly  rates. Consultants, accountants, financial planners, and insurance  agencies are a few examples of service businesses. By comparing the  balance sheets of the two types of organizations, it is possible to  better understand the variations in income statements. For a  merchandising company, inventory makes up a sizable portion of the  assets category. Since their capital is invested in illiquid assets,  they typically have less cash on hand than service businesses. In  contrast, the assets of service businesses are typically dominated by  accounts receivable. For a service-based company, since there is no inventory, receivables reflect a larger percentage of overall assets. Companies in the service industry as well as the retail sector may see gains or losses from non-operational sources. The two business kinds of sources of gains or losses, however, are different. For instance, a merchandiser may choose to renovate a retail space and profitably sell off the fixtures.  The sale of a patent could result in a one-time profit for a service provider. Both kinds of enterprises may potentially be impacted by legal actions. Lawsuits against merchandisers frequently center on faulty goods. A service provider may, however, be sued more frequently for violation of contract. In order to better explain their internal financial operations to investors, analysts, and regulators, both merchandise firms and service providers generate income statements. Retailing businesses or a decrease in revenues.