How are manufacturing companies different from manufacturing companies?
How are manufacturing companies different from manufacturing companies?
Answer: The primary differences are as follows: Merchandising companies do not calculate the raw materials placed in production or cost of goods manufactured (shown in the top section of Figure 1.7 “Income Statement Schedules for Custom Furniture Company”). Merchandisers purchase goods from suppliers instead of manufacturing goods.
Who are the companies that do not manufacture goods?
Merchandising companies (also called retail companies) like Macy’s and Home Depot buy and sell goods but typically do not manufacture goods. Since merchandising companies must account for the purchase and sale of goods, their accounting systems are more complex than those of service companies.
How to prepare an income statement for a manufacturing company?
Describe how to prepare an income statement for a manufacturing company. Question: Companies that provide services, such as Ernst & Young (accounting) and Accenture LLP (consulting), do not sell goods and therefore have no inventory. The accounting process and income statement for service companies are relatively simple.
How does merchandising firm account for cost of goods sold?
Since a merchandising firm has to purchase goods for resale, they account for this cost as cost of goods sold —what it cost them to acquire the goods that are then sold to the customer. The difference between what the drug store paid for the toothpaste and the revenue generated by selling the toothpaste to consumers is their gross profit.
Why are manufacturing companies more complex than service companies?
Since merchandising companies must account for the purchase and sale of goods, their accounting systems are more complex than those of service companies. Manufacturing companies, such as Johnson & Johnson and Honda Motor Company, produce and sell goods.
Can a manufacturer sell an asset to another customer?
There are no contractual or legal restrictions preventing the manufacturer from selling the asset to another customer, but the manufacturer is pragmatically limited in its ability to sell the asset to a different customer.
Merchandising companies (also called retail companies) like Macy’s and Home Depot buy and sell goods but typically do not manufacture goods. Since merchandising companies must account for the purchase and sale of goods, their accounting systems are more complex than those of service companies.
How does the manufacturer provide benefits to the customer?
The customer simultaneously receives and consumes the benefits provided by the manufacturer as it performs. The manufacturer’s performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced.