Merchandising Operations - This expense is directly related...

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Merchandising Operations Wal-Mart, Kmart, and Target are called merchandising companies because they buy and sell merchandise rather than perform services as their primary source of revenue. Merchandising companies that purchase and sell directly to consumers are called retailers . Merchandising companies that sell to retailers are known as wholesalers . For example, retailer Walgreens might buy goods from wholesaler McKesson; retailer Office Depot might buy office supplies from wholesaler United Stationers. The primary source of revenues for merchandising companies is the sale of merchandise, often referred to simply as sales revenue or sales . A merchandising company has two categories of expenses: the cost of goods sold and operating expenses. The cost of goods sold is the total cost of merchandise sold during the period
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Unformatted text preview: . This expense is directly related to the revenue recognized from the sale of goods. Illustration 5-1 shows the income measurement process for a merchandising company. The items in the two blue boxes are unique to a merchandising company; they are not used by a service company. Income measurement process for a merchandising company Operating Cycles The operating cycle of a merchandising company ordinarily is longer than that of a service company . The purchase of merchandise inventory and its eventual sale lengthen the cycle. Illustration 5-2 contrasts the operating cycles of service and merchandising companies. Note that the added asset account for a merchandising company is the Merchandise Inventory account. Operating cycles for a service company and a merchandising company...
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