Question

Question 1

1-Explain how to calculate the net income for merchandising companies, why is it different than calculating the net income for service companies.

2-Prepare the income Statement for Yazeed merchandising company for December 2015 that has the followings: Sales: 9,000 Sales discount: 6,000 Salaries expenses: 200 Advertising expenses: 400 Sales returns and allowances: 10 Insurance expenses: 50,000 Costs of Goods Sold: 4,000

Answer 1

Question 1:

A Merchandising company sells goods/products while a service company provides services.

Companies that provide service do not carry any inventory, but merchandising carry inventory and sell that or process that further to make a product. The main difference that is noted between the two income statements is Cost of Goods sold.

Merchandising Company will have Sales - Cost of Goods sold = Gross Profit - Total expenses = Net Income

While, a service company will have no cost of goods sold, it will be Sales - Total expenses = Net Income.

Question 2: