Fundamental Accounting Principles
Fundamental Accounting Principles
23rd Edition
ISBN: 9781259536359
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
Question
Book Icon
Chapter 5, Problem 1DQ
To determine

Concept Introduction: Business can be of various types but broadly they are categorized in two types. The one who undertake sale the goods are knows as manufacturing or trading businesses and the one who provide the services are known as service industry.

To identify: The items that will appear in the financial statements of merchandising company but not in the statements of service companies.

Expert Solution & Answer
Check Mark

Explanation of Solution

The businesses can be different so as to their components of financial statements. The businesses can be of three different kinds. These are manufacturing, trading and the service industry.

Manufacturing industry is the business which is engaged in the production of goods. Trading industry is engaged in the selling of products already manufactured by someone and service industry is that business which is involved in providing services on the basis of their knowledge and know-how.

The following are the items that will appear in the financial statements of merchandising companies but not in the statements of service companies:

a) Cost of goods sold – Cost of goods sold is reported in the income statement of merchandising company. Since no goods are involved in the service industries, it will not be there in their income statement.

b) Purchase cost of material - Since no goods are involved in service industries. Hence, it will not be there in the income statement of service industry.

c) Changes in inventories - Since no goods are involved in service industries. Hence, it will not be there in the income statement of service industry.

d) Inventory – Value of inventory in hand is reported in the balance sheet of merchandising companies but not in the balance sheet of service industry.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 5 Solutions

Fundamental Accounting Principles

Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education