Kunal Sah
Instructor Harrison
FND154
30 May 2015
W3A1
In a merchandising company, the primary source of revenues is the selling of the merchandise, which is referred to as sales revenue or simply, sales. Service companies depend on providing the most high quality services to earn their sales. Unlike expenses for a service company, expenses for a merchandising company are divided into two main categories. The first category is the cost of goods sold, or the total cost of merchandise sold during the period. The second category are operating expenses, which are selling and administrative expenses. One of the most important financial concepts needed to run your business is the computation of gross profit. The tool used to maintain gross profit is called markup. Gross profit is calculated with the formula, sales minus the cost of goods sold, equals the gross profit. In a merchandising company, inventory may consist of many different items. These items share two common characteristics, they are owned by the company, and they are ready for sale to customers. Only one inventory classification though, merchandise inventory, is needed to describe the many different items that make up the total inventory. In a manufacturing company, inventory is usually classified into three different categories, finished goods, raw materials, and works in process. By observing the levels and changes in these three inventory types, financial statement users, such as the owner, can gain insight into the management's production plans. Also, no matter whether they are using a periodic inventory system, or a perpetual inventory system, all companies need to have the ability to determine inventory quantities at the end of the respective accounting periods. (Nurre) The three different cost flow methods are, FIFO (first-in-first-out), LIFO (last-in-first-out), and average cost. FIFO is figured by taking the costs of the first-in product to start with, and going ahead to cost out everything afterwards. LIFO is similar, but starting with the last-in product.(AccountingCoach) The balance sheets and income statements will fluctuate, as far as rising prices
