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Chapter 3: Q9Q (page 127)

(a) How are the components of revenues and expenses different for a merchandising company? (b) Explain the income measurement process for a merchandising company.

Short Answer

Expert verified

a. The components of revenues and expenses are different for a merchandising company because here, the sales are regarded as the main source of revenue, and the expenses are split into two groups; operating expenses and cost of goods sold.

b. The income in a merchandising company is measured by comparing the sale value of the merchandising inventory with the cost of goods sold and operating expenses.

Step by step solution

01

Step by Step SolutionStep 1: Meaning of Merchandising Company

Merchandising company is the one that purchases tangible goods and sells them again to the customers. The costs incurred by this business include material and labor costs for presenting and selling products.

02

Cause behind the difference in the components of a merchandising company

In a merchandising company, the components of revenues and expenses are different. In this company, the revenues are considered sales revenue, as well as the expenses, which comprise the cost of goods sold and operating expenses.

03

Process of income measurement for a merchandising company

The income measurement process is as follows;

First, we need to subtract the cost of goods sold from the sales revenue to arrive at gross profit. Further, operating expenses are subtracted from gross profit to obtain net income for the period.

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Most popular questions from this chapter

E3-6 (L03) (Adjusting Entries) Karen Weller, D.D.S., opened a dental practice on January 1, 2017. During the first month ofoperations, the following transactions occurred.1. Performed services for patients who had dental plan insurance. At January 31, \(750 of such services was performed but notyet billed to the insurance companies.2. Utility expenses incurred but not paid prior to January 31 totaled \)520.3. Purchased dental equipment on January 1 for \(80,000, paying \)20,000 in cash and signing a \(60,000, 3-year note payable.The equipment depreciates \)400 per month. Interest is \(500 per month.4. Purchased a one-year malpractice insurance policy on January 1 for \)12,000.5. Purchased \(1,600 of dental supplies. On January 31, determined that \)500 of supplies were on hand.InstructionsPrepare the adjusting entries on January 31. (Omit explanations.) Account titles are Accumulated Depreciation—Equipment,Depreciation Expense, Service Revenue, Accounts Receivable, Insurance Expense, Interest Expense, Interest Payable, PrepaidInsurance, Supplies, Supplies Expense, Utilities Expenses, and Accounts Payable.

BE3-9 (L03) Prepare the following adjusting entries at August 31 for Walgreens. (a) Interest on notes payable of \(300 is accrued. (b) Services performed but unbilled total \)1,400. (c) Salaries and wages earned by employees of \(700 have not been recorded. (d) Bad debt expense for year is \)900. Use the following account titles: Service Revenue, Accounts Receivable, Interest Expense, Interest Payable, Salaries and Wages Expense, Salaries and Wages Payable, Allowance for Doubtful Accounts, and Bad Debt Expense.

Andrea Pafko, a fellow student, contends that the double-entry system means that each transaction must be recorded twice. Is Andrea correct? Explain.

Included in Gonzalez Company’s December 31 trial balance is a note receivable of \(12,000. The note is a 4-month, 10% note dated October 1. Prepare Gonzalez’s December 31 adjusting entry to record \)300 of accrued interest, and the February 1 journal entry to record receipt of $12,400 from the borrower.

When converting to IFRS, a company must:

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