While the general idea is the same, here are differences between how a service company and merchandising company conduct their accounting and financial statement. As we are basing this off a merchandising company using the perpetual system we should remember that what this means is it records the cost of goods sold at the time of of each sale. A merchandising company, will use the accounts merchandising inventory, net sales, sales discount, sales return and allowances. cost of goods sold, general and administrative expenses, selling expenses. Merchandising inventory is a current asset account, with a normal debit balance which is the items a company owns and is preparing to sell. It's total includes the cost to purchase, ship, and sell the items. The freight transportation is actually covered under merchandising inventory, but it is between the buyer and seller to decide who will pay for and own the product at a given time. (FOB Shipping Point and FOB Destination). The perpetual system calls for every sales transaction to be essentially recorded twice with a revenue (normal credit balance) increase and an asset decrease through cost of goods sold(normal debit side). The net sales which is net of discount and returns/allowance, is a normal credit balance, and is the company's gross sales figures. I believe we learned this already in an earlier chapter, but we see again the sales discount account which is a contra revenue account (normal debit balance). This account calls for the cash taken off a cost for completing a transaction within the allotted discount period designated by the supplier. Similarly, we now have the sales returns and allowances, another contra revenue account,(again normal debit balance). When supplies are damaged or unsatisfactory, the supplier will receive these back or offer an allowance and reduce the cost of sales, and put back into inventory if it is able to be resold. The expense accounts with normal debit balance are total general/administrative which is for insurance expense/rent expense for office and other office space expenses. Selling expenses are for expenses related to the selling of items such as advertising or rent for the selling space.

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