Revenue and Inventory Models
🧾 1. Revenue Models: Service vs. Merchandising Companies
Service Companies
How they earn money: By selling their time and expertise.
Example: Accountants, lawyers, plumbers.
Think of a consultant—they don’t give you a product to take home. You’re paying for their time, not something physical.
Net Income = Revenue - Expenses
Merchandising Companies
How they earn money: By selling physical products.
Example: Clothing stores, auto parts shops.
Like a store selling shoes: they buy inventory from suppliers and sell it to customers at a markup.
🔄 2. Operating Cycle for a Merchandiser
A simple loop: Buy Inventory → Sell Inventory → Collect Cash
Think of it like a vending machine: You stock it with snacks (inventory), someone buys a snack (sale), and now you have cash to restock.
📦 3. Inventory Systems: Perpetual vs. Periodic
Perpetual Inventory System
Updates continuously as items are bought or sold.
Example: Scanning a product at checkout immediately updates the inventory system.
Advantage: Real-time tracking.
Periodic Inventory System
Updates only at specific intervals (e.g. monthly).
You count stock at the end of the month to see what’s left.
Sales and inventory levels are recorded less frequently.
đź’µ 4. Purchases and Discounts
Purchases Without Discounts
Example: Z-Mart buys $500 worth of merchandise with cash. This is a simple purchase—nothing fancy.
Credit Terms & Discounts
Sellers can encourage buyers to pay early by offering discounts.
Example: 2/10, n/30
- "2/10": Get a 2% discount if you pay within 10 days.
- "n/30": The full amount is due in 30 days if you don’t take the discount.
Think of it like a coupon that expires quickly—you get a small reward for being fast.
🧠What You Should Understand:
- Basic business models (service vs. merchandise).
- How inventory works (perpetual vs. periodic).
- Accounting entries for purchases and sales.
- Credit terms and how discounts work in business.