Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Service Company vs. Merchandising Company

Financial Accounting

4. Merchandising Operations

Service Company vs. Merchandising Company

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Multiple Choice

Which of the following best describes the main difference on the income statement between a manufacturer and a merchandiser?

Manufacturers do not report any inventory on the income statement, while merchandisers do.

Manufacturers report cost of goods manufactured, while merchandisers report cost of goods sold.

Manufacturers include a section for cost of goods manufactured, while merchandisers do not.

Merchandisers report raw materials inventory, while manufacturers do not.

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Verified step by step guidance

Understand the difference between a manufacturer and a merchandiser: A manufacturer produces goods using raw materials, labor, and overhead, while a merchandiser purchases finished goods to sell to customers.

Review the structure of the income statement for both entities: Manufacturers include a section for 'Cost of Goods Manufactured,' which represents the total cost of producing goods during a period. Merchandisers, on the other hand, report 'Cost of Goods Sold,' which reflects the cost of goods purchased and sold during the period.

Clarify the inventory reporting: Manufacturers typically report three types of inventory—raw materials, work-in-progress, and finished goods—on the balance sheet, not the income statement. Merchandisers report only finished goods inventory.

Focus on the key distinction: The main difference on the income statement is that manufacturers include a section for 'Cost of Goods Manufactured,' which details the production costs, while merchandisers do not have this section and instead report 'Cost of Goods Sold' directly.

Conclude by noting that raw materials inventory is not reported on the income statement by either manufacturers or merchandisers; it is part of the balance sheet for manufacturers.