Accounting Theory and Merchandising Organizations

Answer questions about accounting theory and merchandising accounting.


A legal firm’s operations are different than Ford or GM operations. Lawyers provide a service whereas Ford is a manufacturing business that needs to maintain an inventory of various parts used in their vehicles. Each requires its own accounting approach.

We now delve into accounting theory in greater depth. Now that you have learned some accounting procedures, you are better able to relate these theoretical concepts to accounting practice. Accounting theory is a set of basic concepts, assumptions, and related principles that explain and guide the accountant’s actions in identifying, measuring, and communicating financial information.

Your study of accounting began with service companies as examples because they are the least complicated type of business. You are now ready to apply the accounting process to a more complex business type: a merchandising company. This type of company is represented by manufacturers, wholesalers, and retailers.


This assessment focuses on accounting assumptions, concepts, principles, modifying conventions, objectives, qualitative characteristics, accounting policies, and the income statements for service and merchandising organizations. It requires knowledge of the following:

  • The effects of accounting assumptions on the accounting process.
  • The effects of accounting concepts on the accounting process.
  • How generally accepted accounting principles (GAAP) affect financial reporting.
  • The impact of modifying conventions on the accounting process.
  • How accounting objectives, qualitative characteristics, and policies affect financial reporting.
  • The differences and similarities between income statements for service and merchandising organizations.
  • The methods used to determine the amount of merchandise inventory on hand.
  • How to use the gross margin percentage as a tool for financial analysis.


Note: Accuracy in accounting is paramount so take your time and double-check your work for errors or omissions.


Answer questions correctly. When you are satisfied with your responses, save and submit your template in the classroom.

Step 1: Discuss the effects of the five major accounting assumptions on the accounting process.

Step 2: Describe the five concepts’ impact on the accounting process.

Step 3: Describe the five major accounting principles.

Step 4: Describe the impact on the accounting process of the three modifying conventions.

Step 5: Identify the accounting procedures of Principles, Assumptions, Concepts.

Step 6: Complete the equations of merchandising accounting.

Step 7: Describe the two methods used to determine merchandise inventory.

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