Accounting - 5. Does the firm provide goods or services?
5. Does the firm provide goods or services?
A firm trading in goods usually requires more capital than one providing
services. Trading firms invariably have capital tied up in stock.
Management of that stock to ensure satisfactory turnover, minimum stock
loss and the buying of items popular with customers are important. The
respective margins on different stock items must also be considered.
Other aspects include the 'costs' of obtaining stock with the business
attempting to balance 'buying' costs with 'carrying' costs.
When a business fails the disposal of stock is often at far lower margins
than is desired. This places greater risk on the owner's remaining capital.
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