The income statement of a service company is different from that of a merchandising company because a service company does not sell goods to make money, but instead provides an intangible product or service. A service company’s income statement will list revenues, cost of services, sales and marketing and reorganization costs. Other factors impacting the income statement include: interest expense, fee income and income taxes (Kimmel, Kieso, & Weygandt, 2011).
In contrast to a service company, merchandising companies engaging in selling tangible products. These products have a variety of income factors such as sales revenue, product rebates, cost of goods sold, storage, shipping and insurance. A merchandising company lists on its income statement the account “cost of goods sold,” while service companies do not list this account (Kimmel, Kieso, & Weygandt, 2011).
Service based companies do not carry inventory and therefore don’t use this “cost of goods sold” account. Merchandising companies must account for the cost of purchasing the inventory and shipping it to the appropriate locations for selling to customers (Kimmel, Kieso, & Weygandt, 2011). Service companies do not maintain this account.
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Financial accounting: Tools for business decision making (6th ed.). Hoboken, NJ: John Wiley & Sons