Which account does a merchandiser use that a service company does not use?

Merchandise Inventory
Cost of Goods Sold
Sales Revenue
All of the Above

The Correct Answer is

d. All of the Above

Correct Answer Explanation: d. All of the Above

A merchandiser and a service company operate differently in terms of the products they deal with and the nature of their operations. A merchandiser is involved in buying and selling tangible goods, whereas a service company provides intangible services to its customers.

The account a merchandiser uses that a service company does not use includes Merchandise Inventory, Cost of Goods Sold, and Sales Revenue.

Merchandise Inventory is an account specifically used by a merchandiser to record the cost of goods held for resale. This account represents the value of goods that a company has purchased or manufactured and is yet to sell.

It’s a critical component for merchandisers as it helps in tracking the cost of goods available for sale and those sold during a specific period.

Cost of Goods Sold (COGS) is an essential account for a merchandiser that measures the direct cost of producing or purchasing goods that a company sells during a period.

It includes expenses such as materials, labor, and overhead directly associated with the production of goods sold. For service companies, which don’t sell tangible goods, there’s no inventory or cost of goods sold as there are no physical products involved in their operations.

Sales Revenue reflects the income generated from selling goods by a merchandiser. It represents the total amount earned by a company from selling its products before deducting any expenses.

Service companies may have revenue, but it’s termed differently as service revenue, representing the income earned from providing services rather than selling goods.

Now, let’s delve into why the other options are not correct for a service company

a. Merchandise Inventory:

Merchandise Inventory is an essential account for merchandisers as it represents the cost of goods held for resale. It includes items that are purchased or manufactured by the company and are intended for sale to customers.

Service companies, in contrast, do not deal in tangible goods held for resale. Instead, their primary focus is on providing intangible services. They do not stock inventory like merchandisers, which eliminates the need for a Merchandise Inventory account in their financial records.

b. Cost of Goods Sold (COGS):

COGS is crucial for merchandisers as it captures the direct costs associated with producing or purchasing the goods sold during a specific period. It includes expenses such as raw materials, direct labor, and manufacturing overhead.

Service companies, by nature, do not manufacture or sell tangible products. As a result, they do not have costs directly tied to goods sold. Instead, their costs are related to providing services, such as employee wages, office rent, utilities, or administrative expenses. These costs are not classified as Cost of Goods Sold.

c. Sales Revenue:

Sales Revenue represents the income generated from selling goods. It’s a crucial metric for merchandisers to track the total revenue earned from the sale of their products.

While service companies also generate revenue, it is termed differently as service revenue. Service revenue represents the income earned by providing various services to clients or customers. Unlike sales revenue, which is associated with the sale of goods, service revenue is linked to the provision of intangible services.

For service companies, their financial statements and accounting practices focus on service-related income and expenses rather than inventory, cost of goods sold, or sales revenue related to tangible goods.

Their emphasis lies in tracking service revenue, operational costs, and other expenses associated with delivering their specific services.

Therefore, these accounts pertinent to merchandisers are not applicable to service companies due to the fundamental differences in their business operations and revenue generation models.

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Smirti

(Founder of Management Notes)
MBA,BBA.

I am Smirti Bam, an enthusiastic edu blogger with a passion for sharing insights into the dynamic world of business and management through this website.

I hold a MBA degree from Presidential Business School, Kathmandu, and a BBA degree with a specialization in Finance from Apex College,

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Which account does a merchandiser use that a service company does not use?