What Accounting Information Does A Merchandising Company Need
Before we illustrate how a merchandise company accounts for the transactions in its operating cycle, let us consider the basic types of information that the company’s accounting system should develop.
The Merchandise company needs accounting information that will:
(1) Meet its financial reporting requirements
(2) serve the needs of company personalizing conducting daily business operations, and
(3) meet any special reporting requirements, such as information required by income tax authorities.
To meet its financial reporting requirements, a merchandising company must measure and record its revenue from sales transactions, as well as the cost of goods sold. (Other types of revenue and expenses must also be recorded, but this is done in the same manner as in a service-type business.). In addition, the accounting system must provide complete record of the company’s assets and liabilities.
The information appearing in financial statements is very condensed. For example, the amount shown as accounts receivable in a balance sheet represents the total accounts receivable at the balance sheet date. Managers and other company employees need much more detailed accounting information than that provided in financial statements. In billing customers, for example, the company’s employees need to know the amount receivable from each credit customer. In addition, the accounting system must provide the dates and amounts of all changes and payments affecting each customer’s account.
In most respects, the information needed for income tax purposes parallels that used in the financial statements. Differences between income tax rules and financial reporting requirements will be discussed in later posts.