Chapter 5 Notes.docx - Chapter 5 Notes Service...

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Chapter 5 Notes Service Companies -Performs services -Bills customers (accounts receivable) -Collects cash for accounts receivable Merchandising Companies -Buy inventory (cash or accounts payable) -Sell inventory (cost of goods sold) -Bills customers (accounts receivable) -Collects the cash for accounts receivable -BUY AND SELL MERCHANDISE AS THEIR PRIMARY SOURCE OF REVENUE -Examples: -Target -Best Buy *Expenses divided into 2 categories -Cost of goods sold (total cost of merchandise sold during the period) -Operating expenses Sales Revenue - Costs of Goods Sold Gross Profit - Operating Expenses Net Income *Operating cycle of a merchandising company is no longer than that of a service firm Beginning inventory Cost of goods purchased Cost of goods available for sale Cost of goods sold Ending inventory Perpetual System -Detailed records of the cost of each inventory purchased and sale are maintained -Shows at all times the inventory that should be on hand for every item -Cost of goods sold is determined each time a sale occurs -Use computer systems, bar codes, and optical scanners Periodic System -Detailed records are not kept throughout the period

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