How is the income statement of a merchandising company different from that of a service company?

The income statement of a merchandising company is different from the income statement of a service company because it is a multiple-step income statement and it shows the gross profit, income from operations, and the net income of the merchandising company.  A service company would not have to report any cost of goods sold which helps determine the gross profit of a merchandising company.

Before I entered the world of property management and financial services I worked for a nut, dried fruit, and candy wholesaler supplier. One of the major goals of the president was to drive down his cost of goods sold. He was always happy when he could order larger quantities of his goods or work a yearly purchase agreement to guarantee a certain quantity discount to get his “goods” at a better price. I remember looking over the income statement every month because my bonus was based on the price at which I could sell the product to my retailers less the cost of goods sold, or the gross profit. According to Kimmel (2011) in his book Financial Accounting Tools for Business Decision Making he states, “A merchandising company has two categories of expenses: the cost of goods sold and operating expense” (2011). Merchandising companies must detail those expense categories on their income statement while service companies do not.  

Kimmel, P., Weygandt, J. & Kieso, D. (2011). Financial accounting tools for business decision making. Danvers, MA: John Wiley & Sons, Inc.