Service companies perform service for fee. In ascertaining net income, a basic income statement is all that is need. Net income is measured as the difference between revenues from services and expense. In contrast, merchandising companies earn income by buying and selling goods. These entities use the same basic accounting methods as service companies, but the process of buying and selling merchandise required some additional accounts and concepts. This process result in a more complex. To provide a better measurement of performance, the income of merchandising business is presented with additional line items:
Service Company Merchandising Company
Income Statement Income Statement
Revenues Net Sales
minus
Cost of Good Sold
minus equals
Gross Margin from Sales
minus
Expenses Operating Expenses
equals equals
Net Income Net Income
This is the difference of components between service company and merchandising company.
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