Each Of The Following Companies Is A Merchandising Company Except A

The correct option of this multiple choice question (mcq) is (c), as a moving company deals in services and provides services to clients against the fees received from clients during the accounting period. Examples of moving companies include consulting firm, law firms, rental companies, etc.

In service company’s business, inventory valuation is not required as the service business is not dealt with inventory or goods held for sale purposes during the working hours of the business. So, in merchandising or trading business, finished goods inventory (both beginning and ending) are considered.

How Is The Income Statement Of A Merchandising Company Different From That Of A Service Company?

As the Merchandising Company (MC) deals with buying and selling of goods, so cost of goods sold is calculated which is calculated as shown below:

Cost of Goods Sold (COGS) = Beginning Inventory + Purchases - Ending Inventory

In MC, the Income Statement includes the following items as shown below:

(i) Sales

It is the price of goods sold to customers during the accounting period.

(ii) Cost of Goods Sold

It is the total direct costs of the goods sold incurred during the accounting period.

 (iii) Gross Profit

When cost of goods sold is deducted from sales, we find it as shown below:

Gross Profit = Sales - COGS

(iv) Indirect Expenses

All the expenses which are not directly related with the cost of goods sold such as operating expenses (rent expenses, utilities exp. paid, legal fees paid, etc.), non operating and other expenses (loss on sale of fixed assets, investment losses, collection fees etc.).

(v) Net Income

Finally, the net income is calculated which is the difference between gross profit and operating expenses plus non-operating and other expenses (Net Income = Gross Profit - Operating Expenses + Non-Operating And Other Expenses).

In service company, the income statement includes the following items as shown below:

(i) Service Revenue

It is earned by the service company by performing services to clients such as providing consulting services to clients and received fees from them.

(ii) Operating Expenses, Non-Operating And Other Expenses

All the expenses incurred for running business’ operations are operating expenses. Non-operating and other expenses are not directly related with the cost of running the business’ operations.

(iii) Net Income

When all the expenses are deducted from sales i.e., Net Income = Service Revenue - Operating Expenses + Non-Operating & Other Expenses, we get Net Income if service revenue is greater than all expenses.