Accounting for Various Types of Businesses Service Businesses

Accounting for Various Types of Businesses

Service Businesses • Very simple accounting. Only have the service itself to keep track of – it’s intangible.

Retail/ Product-Sales Business • Items often purchased on credit and paid for at a later date. • Inventory control is crucial: match quantity ordered to quantity received and how much you are charged. • A fiscal year is a 12 month operating period. Inventory is usually replenished at the start of every fiscal year.

• Cost of Goods Sold: value of items sold throughout the year Beginning Inventory Purchased Cost of all Goods Available for Sale Ending Inventory Cost of Goods sold $ 50 000 + 75 000 $125 000 - 40 000 $ 85 000

• Gross Profit: Money left over after deducting cost of goods sold from revenue, but before deducting expenses that helped generate revenue. Sales Revenue Cost of Goods Sold Gross Profit $ 150 000 - 85 000 $ 65 000

• Net Profit/ Net Income: Amount resulting from deduction of expenses from gross profit. Gross Profit Expenses Gross Profit $ 65 000 - 25 000 $ 40 000 • Net Income is what a business owner declares for income tax purposes. • Wholesalers and importers use this same method.

Manufacturing Businesses • Accounting is more complex. • 4 Factors to consider: – Raw Materials ( unprocessed, semi or fullyprocessed); – Goods in process (goods that are partially finished); – Direct labour (labour involved in the manufacturing process); – Finished goods (Cost of finished product) • Factory overhead includes expenses in operating the production facility Cost of Finished Goods = Raw Materials + Direct labour + Factory Overhead

Class Work • P. 184 # 1 a, b, c; 2 c ( explain how, don’t worry about $)