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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

Give an example of a transaction that result in:

  1. A decrease in asset and a decrease in a liability.
  2. A decrease in one asset and an increase in another asset.
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Becker Ltd. is planning to adopt IFRS and prepare its first IFRS financial statements at December 31, 2018. What is the date of Becker鈥檚 opening balance sheet, assuming one year of comparative information? What periods will be covered in Becker鈥檚 first IFRS financial statements?

BE3-11 (L04) Side Kicks has year-end account balances of Sales Revenue \(808,900, Interest Revenue \)13,500, Cost of Goods Sold \(556,200, Administrative Expenses \)189,000, Income Tax Expense \(35,100, and Dividends \)18,900. Prepare the year-end closing entries

What are closing entries and why are they necessary?

The purpose of presenting comparative information in the

transition to IFRS is:

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(d) to provide users of the financial statements with information on IFRS for at least two periods.
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