Merchandise inventory

Definition

Merchandise inventory consists of goods that a company holds for the purpose of resale. It is considered a current asset on the balance sheet and plays a crucial role in determining cost of goods sold (COGS).

5 Must Know Facts For Your Next Test

1. Merchandise inventory valuation impacts both the balance sheet and income statement.
2. The main inventory valuation methods are FIFO, LIFO, and Weighted Average Cost.
3. FIFO (First-In, First-Out) assumes that the earliest goods purchased are the first to be sold.
4. LIFO (Last-In, First-Out) assumes that the latest goods purchased are the first to be sold.
5. Weighted Average Cost method averages out the cost of all items available for sale during the period.

Review Questions

Related terms

Cost of Goods Sold (COGS): The direct costs attributable to the production of goods sold by a company.

FIFO (First-In, First-Out): An inventory valuation method where the earliest items purchased are assumed to be sold first.

LIFO (Last-In, First-Out): An inventory valuation method where the most recently acquired items are assumed to be sold first.