Question

Briefly explain the major differences between income statements of service enterprises versus those of retailers, wholesalers, and manufacturers.

Answer 1

As we know that income statement is prepared by all types of enterprises whether it is a service enterprise, retailers, wholesalers and manufacturers but income statement differs for service enterprises and manufacturing & merchandise enterprises due to followings reasons;

1. In case of income statement of retailers, wholesalers and manufacturers, we see one item cost of goods sold but such item is not seen in case of income statement of service enterprises.

2. Preparation of income statement for merchandise & manufacturing is complex process but in case of service enterprises, it is much simple process.

3. Schedule of cost of goods manufactured and schedule of cost of goods sold need to be calculated in case of manufacturing enterprises but it is not done in case of service enterprises.

4. In case of income statement of merchandise & manufacturing we can see inventory item but it is not seen in case of income statement of service enterprises.

5. For arriving at the net income figure in case of manufacturing enterprises, we have to deduct various items such as cost of goods sold, operating expenses & income, non-operating items etc. but in case of service enterprises we have to deduct associated expenses from the offered services revenues. Hence in case of service enterprises it looks much simple.