Income Statement Of A Merchandising Business

The financial statements of a merchandising business involve a multiple step income statement which separates the cost of the goods the business sells from the cost of running the business.

Income statement of a merchandising business. If you are working with a company that uses a perpetual inventory system cost of goods sold will already be computed for you. Much of the inventory calculation is manifested through the line item cost of goods sold which is an expense account describing the cost of purchasing inventory and delivering it to customers. Merchandising businesses use the multiple step income statement as it provides more information for financial statement users on the profits made from the actual merchandise versus the costs of running the business. A merchandising company engages in the purchase and resale of tangible goods.

Merchandising companies hold and account for product inventory which makes their income statements inherently more complicated. Financial statement that lists the revenues earned by a business and expenses used to make that revenue in one fiscal period displays the net gain. The following video provides an overview of the difference between merchandising and service companies and their respective accounting needs. To summarize the important relationships in the income statement of a merchandising firm in equation form.

The presentation format for many of these statements is left up to the business. Gross profit is also known as gross margin from sales. Gross margin net sales cost of goods. Merchandising companies prepare financial statements at the end of a period that include the income statement balance sheet statement of cash flows and statement of retained earnings.

Net sales sales revenue sales discounts sales returns and allowances. A business document called an invoice a sales invoice for the seller and a purchase invoice for the buyer becomes the basis for recording the sale. When creating the income statement for a merchandising company it is important to break costs out into product costs and period costs. Income statement for a merchandising business what is an income statement.