Question

In comparing the accounts of a merchandising company with those of a service company, what additional accounts would the merchandising company likely use, assuming it employs a perpetual inventory system?

Short answer

The merchandising company will report the following additional accounts:

1. Merchandise inventory.
2. Sales.
3. Cost of goods sold.
4. Sales discount.
5. Sales return.
6. Allowance.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of Sales Revenue

Sales revenue can be defined as the benefits that a business entity generates from selling a manufactured or purchased product. It is reported at the top of the income statement.

Additional accounts used by a merchandising company

1. Merchandise inventory: It reports the goods that are not sold up to the accounting period end.
2. Sales: It reports the revenue generated from sales.
3. Cost of goods sold: It reports the cost of goods that generated revenue for the business entity.
4. Sales discount: It reports the reduction in the price of goods given to customers.
5. Sales return: It reports the value of goods that the customer returns.
6. Allowance: It reports the sales return made by the business entity.