Question

"The steps in the accounting cycle for a merchandising company are the same as the steps in the accounting cycle for a service company." Do you agree or disagree?

What are the special journals that merchandising companies use? Explain how merchandising companies use these journals.

Answer 1

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A merchandising company requires more steps.

A merchandising company sells products, therefore will have to consider sales (and sales returns and allowances, and sales discounts), purchases (and purchases returns and allowances and purchases discounts), ending inventory, cost of goods sold, etc to find the net profit.

A service company provides a service, therefore there won't be sales, purchases, COGS, etc. Instead, the bulk of costs will probably be labor costs.

Adjusting entries for merchandising company:
- Generally the same as a service company.
- One additional adjustment to make the records agree with the actual inventory on hand (if there is shrinkage).
- Involves adjusting Merchandise Inventory and Cost of Goods Sold.

Special Journals are designed to facilitate the process of journalizing and posting transactions. They are used for the most frequent transactions in a business. For example, in merchandising businesses, companies acquire merchandise from vendors, and then in turn sell the merchandise to individuals or other businesses. Sales and purchases are the most common transactions for the merchandising businesses. A business such as a retail store will record the following transactions many times a day for sales on account and cash sales.

Description	Debit	Credit
Accounts Receivable	XXX
Sales		XXX
Sales Tax Payable		XXX

Description	Debit	Credit
Cash	XXX
Sales		XXX
Sales Tax Payable		XXX