There are three main types of business activities: service businesses, trading businesses, and manufacturing businesses. Service businesses generate revenue from fees for services provided. Trading businesses earn profits from the sale of finished goods purchased from others. Manufacturing businesses convert raw materials into finished goods and sell those goods to customers. The financial statements for each type of business are presented differently based on their activities.

1. TOPIC 9: COMPARISON OF FINANCIAL STATEMENTS BASED ON BUSINESS ACTIVITIES

2. Service Business Provides services to customers. Examples: Hotel, tuition centers, saloon, consultants and banks Customers are expected to pay services fees Presentation of Income Statement Revenue xxx Less: Operating Expenses xxx Net Profit xxx

3. Trading business Trading / merchandizing – sales of finished products to customers Examples: Book shop, Mini market and specialty shops. Hypermarket - Tesco, Giant, Carrefour and Econsave. Trading business could be divided into two: 1) wholesaler – sells finished products to retailers 2) retailer – sells finished products to customers

4. Presentation In Financial Statements Income Statement: Sales xxxx Less Cost of goods sold (xxx) Gross Profit xxx Less Operating Expenses (xxx) Net Profit xxx Balance Sheet Current asset: Inventory xxxx

5. Manufacturing The business activity involves converting the raw materials into finished products, which will be sold to the customers. Examples: Coca Cola, Sony, Bata, Proton, Panasonic etc. The manufacturing costs schedule (costs of goods manufactured) need to be prepared before preparing the Income Statement.

6. Presentation In Financial Statements Income Statement Sales xx (-) Costs of goods sold Beginning inventory xx Manufacturing costs xx xx Ending inventory (xx) (xx) Gross profit xx Less operating expenses xx Net profit xx

7. Balance Sheet Current asset Inventory:- Raw material Work in Process Finished Goods Finished Goods Inventory Shows the cost of completed goods on hand Work in Process Inventory Shows the cost applicable to units that have begun production but are only partially completed Raw Materials Inventory Shows the cost of raw materials on hand