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

Cherokee Incorporated is a merchandiser. Which of the following best describes a key difference between a merchandising company and a service company?

A merchandising company records cost of goods sold, while a service company does not.

A merchandising company only provides intangible products, while a service company provides tangible products.

A merchandising company does not maintain inventory, while a service company does.

A merchandising company earns revenue primarily by selling goods, while a service company earns revenue by providing services.

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Verified step by step guidance

Understand the key difference between a merchandising company and a service company. A merchandising company primarily earns revenue by selling physical goods, while a service company earns revenue by providing intangible services.

Recognize that a merchandising company typically maintains inventory and records cost of goods sold (COGS) as part of its operations. This is because it deals with tangible products that are bought and sold.

Contrast this with a service company, which does not maintain inventory or record COGS, as it provides services rather than physical goods.

Eliminate incorrect options based on the definitions: A merchandising company does not provide only intangible products, nor does it avoid maintaining inventory. These statements are inaccurate.

Select the correct answer: A merchandising company earns revenue primarily by selling goods, while a service company earns revenue by providing services. This accurately reflects the fundamental difference between the two types of businesses.