RSM220H1 Chapter Notes -Perpetual Inventory, Inventory Turnover, Purchase Order
20 Apr 2012
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Chapter 5: a service company versus a merchandising company. 1. 1. 1 service company: service revenue e. g. schools, banking, painting, travel industry etc. Merchandising company: the primary source of revenues is the sale of merchandise. (sales revenue, or sales) e. g. clothing stores. 1. 1. 2 unlike a service company, expenses for a merchandising company are divided into two categories: cost of goods sold - total cost of merchandise sold during the period. Cogs = beginning inventory + cog purchased cog on hand (this gives the current amount in stock or the ending inventory): operating expenses - expenses incurred in the process of earning sales revenue. 1. 1. 5 gross profit = sales revenue - cost of goods sold. 1. 1. 6 operating and non-operating expenses are deducted from gross profit to determine net income (or loss). 1. 2 operating cycle: average time it takes to go from cash to cash in producing revenues. The operating cycle of a merchandising company is longer than that of a service company.
