Requirement 1:

Please let us know what distinguishes a merchandising business from a service business. Also, please list three accounts that would normally appear in the chart of accounts of a merchandising business but would not appear in the chart of accounts of a service business.

Requirement 2:

Rustic Furniture Co. is owned and operated by Cam Pfeifer. The following is an excerpt from a conversation between Cam Pfeifer and Mitzi Wheeler, the chief accountant for Rustic Furniture Co:

Cam: Mitzi, I've got a question about this recent balance sheet.

Mitzi: Sure, what's your question?

Cam: Well, as you know, I'm applying for a bank loan to finance our new store in Garden Grove,

and I noticed that the accounts payable are listed as $320,000.

Mitzi: That's right. Approximately $275,000 of that represents amounts due our

suppliers, and the remainder is miscellaneous payables to creditors for utilities,

office equipment, supplies, etc.

Cam: That's what I thought. But as you know, we normally receive a 2% discount

from our suppliers for earlier payment, and we always try to take the discount.

Mitzi: That's right. I can't remember the last time we missed a discount.

Cam: Well, in that case, it seems to me the accounts payable should be listed

minus the 2% discount. Let's list the accounts payable due to suppliers as

$314,500 rather than $320,000. Every little bit helps. You never know. It might make

the difference between getting and not getting the loan.

Please discuss how would you respond to Cam Pfeifer's request.

Responses to Classmates:

Please explain to your classmates how a business can earn a gross profit but incur a net loss.