Merchandising uses cost of goods sold ( cogs, an expense) and gross profit (profit before deducting operating expenses) When something is sold, merchandising businesses refer to them as sales. When something is sold for service businesses, refer to them as fees earned. Merchandise inventory (mi) merchandise on hand (current asset: includes freight costs, purchase returns & allowances, purchase discounts, increases by purchases, decreases by cogs with each sale. Sub ledger large number of small accounts w common characteristics, grouped into one. Gross profit operating expenses = operating income / Inventory equations (*remember the cost of bi for any period = cost of ei for the previous period) Cost of beginning inventory + net cost of purchases = cost of goods available for sale. Initially (bi + np = coga) what you started with, + what you added to your inventory. Cost of ending inventory + cost of goods sold = cost of goods available for sale.