Question

Name three accounts that would normally appear in the chart of accounts of a merchandising business but would not appear in the chart of accounts of a service business. What type of accounts are these and when are they used? Answer these questions with a minimum posting of 250 words.

Answer 1

Some of the accounts that would only appear in the chart of accounts of merchandising business but not appearing in the service business are as follows :

a.Sale of scrap : It is a nominal account . When the entity manufactures the merchandise , in the process there would be some scrap being generated which may have value or sometimes have 0 value .

b.Process accounts (Work-in-progress )

c.Finished goods account

d.Power cost (In offices we use electricity and pay electricity charges but in factories power is used for running heavy machines)

e.Heavy machinery ( used in the manufacturing of merchandise)

f.Subsidies received for purchase of machinery and etc

I have given example of many accounts above but would be explaining 3 as asked above

a.Sale of scrap account : It is a nominal account .When the entity manufactures the merchandise in the process there would be some scrap being generated which may have some nominal value or may have 0 value sometimes . This could be some goods which were beyond being defective that is cannot be corrected to sell as merchandise .This can be sold by the company in the form of scrap . Revenue received from this can either be reduced from the value of the cost of other goods sold or can be taken to income statement as a separate income .

c.Finished goods account . A merchandising entity may either produce goods or sell the goods already manufactured . These goods will be recorded in this account and cost of sales will be credited to this . THIS is also a nominal account . In case of service entity , there would be no such account as they provide service and not sell products or merchandise .

e. Heavy machinery including the costs associated with them : heavy machinery are usually used in the process of manufacturing . These may either be fixed to the ground or may be placed on the floor acquiring huge space . Entity usually has to incur few costs associated to these such as repairs and maintenance which will also be huge as the machinery is used . These would require oiling and routine checkup’s to know about whether the machine is not exposed to any loose fittings etc . some times some subsidies may also be provided to purchase such machinery as the costs involved will be huge . Treatment of the subsidy received would depend on the entity and thus depending on the treatment other accounts would also appear .