goodmorning

CHAPTER 5: types of business according

to activities

Introduction: A business is an organization

that converts or resources such as
material, labor, and overhead into
outputs which are usually either goods or
services.
 3 major types of business
• Service Companies
• Merchandising Companies
• Manufacturing Companies
 Service Companies
Service companies are firms that generally use
their employees to provide intangible products
or services to customers. These services
include professionals skills, advice, expertise
and other products. The primary source of
revenues of service companies is the
performance of services, often referred to as
service revenues.
 Operating cycle
Operating cycle- is the time it takes for a
company to create products, sell these
products, and collect cash payments from the
customers. For service companies, the major
phases of their operating cycle include paying
out money for employees and other operating
expenses, performing the services, and
collecting cash from the customers.
Operating Cycle of a Service
Company

Cash on
hand

Receives Pays
payments employees
for and other
customers expenses

Performs
services
 Merchandising companies
This type of business buys finished or
almost finished goods from their suppliers
and resells them to customers.
Merchandising companies primarily earn
revenues from the sales of goods or
merchandise, also known as sales
revenues or sales.
Two types of merchandising company

Retailers – a merchandising
company that sells goods directly
to customers.
Wholesaler- is a merchandising
company that sells goods to
retailers.
 Operating cycle
The operating cycle of a merchandising
company is typically longer than that of a
service company. . It starts with the
purchase of the goods to be held for
resale, also known as inventory. Then
eventually sell the inventory to
customers. The cycle ends with the
receipt of cash payments.
 Operating Cycle of a
Merchandising Company

Cash on
hand

Receives
payments Buys
from goods
customers

Stores
Sells
goods as
inventory
inventory
 Manufacturing companies
Manufacturing companies or simply
manufacturers are relatively more complicated
organization that services and merchandising
companies since they create their own
products. They use raw materials, components,
or parts which are processed using , machines,
computers and labor to produce finished
goods.
 Operating cycle
Operating cycle of a manufacturers has the
longest period since they create their own
products. It has additional phase which is the
production goods. These goods are held as
inventory and later on sold to its customers.
Manufacturing generally need initial capital
outlay to run production facilities and that
requires large sum of money.
 Operating Cycle of a
Manufacturing Company
Cash on
hand
Pays for
Receives
inputs
payments
(materials,la
from
bor,
customers
overhead)

Converts
Sells inputs into
inventory finished
goods
Stores
finished
goods as
inventory