Question

Which one of the following would appear on the income statement of both a merchandising company and a service company.

a) Operating Expenses
b) Gross Profit
c) Cost of Goods Sold
d) Sales Revenue

Answer 1

Both merchandising and service companies record Operating Expenses on their income statements. This is because both types of businesses incur costs essential for their operations, such as rent, utilities, and salaries.

Step-by-step explanation:

The item that would appear on the income statement of both a merchandising company and a service company is a) Operating Expenses. While merchandising companies record Cost of Goods Sold and Gross Profit to reflect the cost of inventory sold and the profit made on that inventory, service companies do not deal with physical inventory and thus do not report these items. However, both types of companies incur operating expenses during their operation. These expenses include rent, utilities, salaries, and any other costs necessary for the day-to-day operation of the business. Sales Revenue might seem like a common item, but it is typically categorized differently in service companies, where the term 'service revenue' or 'fees earned' would be more appropriate.