In this chapter, the Income Statement of Adelaide Bank (Exhibit 6.13) is typical of many service firms, in that Operating Profit (consisting of the difference between operating revenue and operating expenses) is separated from other (non-operating) items. However, the Income Statement of a retailer (Exhibit 6.14) more closely resembles that of a manufacturing organisation, as the need to consider the cost of sales causes us to recognise the direct profits of selling merchandise (gross profit) separately from the financial effects of other activities.
Refer to Exhibits 6.13 and 6.14 and answer the following questions.
1. List the major differences between the income statements and balance sheets for a travel agency and a retail business.
2. On the income statement for the travel agency, where would the sales staff salaries be shown?
3. Where would the costs of the computer equipment used to keep track of reservations be included in the income statement for the travel agency?
4. Where would the costs of newspaper advertising be shown in the income statement for the retailer and the travel agency?
5. Where would the cost of merchandise be shown in the retailer’s income statement and balance sheet?
6. Where would the costs of stationery used to print reservations and tickets be shown on the travel agency’s income statement and balance sheet?