Question

1. How do the components of revenues and expenses differ between a merchandising company and a service company?

Answer 1

The components of revenues and expenses are different in merchandising business and service business.Various costs may incurred by both merchandising and service businesses. Both have employees, both need equipment in order to be in business and both types of business structures have customers who pay for goods or services. The primary difference between a merchandising firm and a service firm is that the merchandising firm must have tangible stock inventory.

Merchandising Business:

A merchandise business sells merchandise(tangible goods).They must have stock inventory. eg : clothing business,grocery business etc.merchandise company will make revenue and profits off the inventory they sell. Merchandise-based businesses depend on the sale of tangible goods to make money.

Service Business:

A service business sells intangible things to make revenue.a service company does not have stock inventory.hey runs their business by providing services to its customers. eg : consultancy, training or maintenance.

The components of revenues and expenses are different between merchandising and service companies.

Source of revenue:

The type of business determines the source of revenue. If you run a merchandise-based business, your company will make revenue and profits by the inventory you sell.Service-based businesses,on the other hand, offer services such as legal consulting, landscaping as the main source of revenue. Service-based businesses measure results and time spent on a project as a basis for revenue.

Expenses:

1.Inventory

Merchandise-based businesses make revenue and profits through selling tangible inventories. Cost for the storage of this inventory will be the major expense for a merchandise business and it increases operating costs.As there is no tangible inventory in service business it doesn't have operating cost for storing the inventory.

2.Transportation Cost:

In a merchandising business transporting inventory to different locations need to be considered as major part of expenses. If it is a service-based business, you will not likely have transportation costs to deal with.

3.Operating cycles:

Merchandise-based businesses and service-based businesses operate on different cycles.Merchandise-based businesses typically receive cash, buy inventory, merchandise the inventory, sell the goods and account for sales. On the other hand, a service-based business has few steps that consist of receiving cash, performing services and accounting for the sale of those services.

The major source of revenue in a merchandising business in sales revenue(selling goods),And for a service business the source of revenue will be fees and rents.The primary source of expenses of a merchandising firm is cost of goods sold and operating cost of the firm.And for a service business the source of expense is operating cost only.