Definition: Merchandise inventory is goods that a company purchases and plans to resell to customers at a higher price. Typically, retailers and wholesalers are the only businesses with merchandise inventory. Manufacturers produce inventory, but they don’t purchase it and resell it. Thus, a manufacturer’s inventory isn’t considered merchandise inventory. Retailers, wholesalers, and distributors buy goods from manufacturers and
actively market or merchandise the goods to customers. The distinction between a retailer’s customer and a manufacturer’s customer is that a retail customer is the end user of the product. Retailers record their inventory on the balance sheet as a current asset and usually listed below cash and accounts receivable. Here’s an example of the typical merchandiser’s operating cycle and the journal entries required. When a retailer purchases inventory from a manufacturer, it is recorded as an asset by debiting the inventory account and crediting cash or accounts payable. Notice that inventory is not expensed until it is actually sold. Here is the entry to record a bulk
inventory purchase by a retailer early in the year. Later, when the retailer sells $100 of that merchandise inventory to a customer for $500, the cash account is debited and the revenues account is credited for the same about. The inventory account is credited for the amount the retailer paid for the inventory and the cost of goods sold account is debited for the same account. Basically, all merchandise is capitalized when it is purchased and recorded on the balance sheet as a current asset. When it’s later sold to a customer, the inventory is transferred from the asset account to an expense account. You can think of the merchandise inventory account as a holding account for inventory that is waiting to be sold.
 Financial statement reporting of merchandise inventory Merchandise inventory is reported as a current asset on the balance sheet as follows.
The effects of merchandise inventory on the income statement are shown as the cost of goods sold, which is usually the largest expense of merchandising companies.
Financial Reporting Summary The following table summarizes the relationships among the major topics examined in this and previous chapters. The numbers in parentheses refer to the chapters in which the topics were discussed.
Where does merchandise inventory go on a balance sheet?Merchandise inventory is reported as a current asset on a retailer's balance sheet. A current asset is one that will provide an economic benefit during a given accounting period, typically a year.
What is merchandise inventory on a balance sheet?What Type of Account Is Merchandise Inventory? Merchandise inventory is the account on a balance sheet that reflects the total amount paid for products that are yet to be sold. As a current asset, merchandise inventory is basically a holding account for inventory that's waiting to be sold.
Is merchandise inventory a current liability?Because inventory production is typically closely correlated with demand, so inventory usually sells within one year of being produced. Therefore, inventory/merchandise is a current asset.
Is merchandise inventory an asset liability or equity?Through this process of buying and selling products, The Gap's management increases The Gap's resources over time. In terms of the accounting equation, merchandise inventory is a current asset as shown below.
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