Q. Complicated type of business?

Your study of accounting began with service companies as instance because they are the least complicated type of business. You are at present ready to apply the accounting process to a more complex business a merchandising company. Although the basic accounting concepts for service businesses apply to merchandising businesses merchandise accounting requires some additional accounts and techniques to record sales and purchases. The normal flow of goods from manufacturer to final customer is as follows

Manufacturers produce goods from raw materials as well as normally sell them to wholesalers. Subsequent to performing certain functions such as packaging or labelling wholesalers sell the goods to retailers.

Retailers sell the goods to end customers. The two middle boxes in the figure represent merchandising companies. These companies purchase goods in finished form for resale. This section begins by comparing the income statement of a service company with that of a

merchandising company. After that we describe (a) how to record merchandise-related transactions (b) a classified income statement and (c) the gross margin percentage. Ultimately in the appendix we describe the work sheet and the closing process for a merchandising company.