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Merchandise Inventory

A merchandising company has different business operations than that of a servicing company. A merchandising company earns net income by buying and selling merchandise. A good example is Costco that buys groceries, electronics and clothes from manufacturers and resells it to customers for a margin (profit). Merchandise is referred to as goods that a company acquires for the purpose of reselling them to customers. The cost of this merchandise is called Cost of goods sold and is a direct expense item on the Income statement. Merchandising companies can either be wholesalers like Costco or retailers like Rogers Video.

Net income for a merchandiser arises when revenue from selling merchandise exceeds both the cost of merchandise sold to customers (margin) and the cost of operations for the period, including salaries of employees working at the head office, marketing & accounting costs, costs for the Information Technology department, and more. The accounting term for revenue derived from selling merchandise is known as Sales.

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