Chapter 5, Problem 3Q

To determine

Merchandising and Service Companies:

A merchandising company purchases and sells directly. It involves a longer operating period than a service company, as the inventory and the eventual process of selling increases the operating cycle, thereby differing between the two companies.

In a merchandising company, the process of purchasing merchandise inventory and the final process of selling extends the time period of the cycle. This may lead to a need for making quantity records for all purchases and sales.

A service company provides services to its customers. This indicates that there would be no effect of sales, purchases, and cost of goods sold. The bulk of costs would involve labor costs.

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