In Depth Notes on Merchandising Operations

Merchandising Operations

• Definition: Merchandising operations involve companies that buy and sell goods for resale.
  • Excludes service businesses (e.g., airlines, banks), manufacturers, government, and not-for-profits.

Characteristics of Merchandising Operations

• Inventory: Merchandising companies hold significant inventory.

  • Service businesses generally have little to no inventory.

• Operating Cycle: The time from cash outflow (purchase of goods) to cash inflow (receiving cash from sales).

  • Initial cash outflow for goods may take time to convert to cash after sales, especially with credit sales.

• Expense Reporting: Merchandising operations report the cost of goods sold (COGS); service businesses do not report COGS as they don’t sell physical goods.