Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

5. Inventory

Merchandising Company vs. Manufacturing Company

Financial Accounting

5. Inventory

Merchandising Company vs. Manufacturing Company

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Multiple Choice

Which of the following statements about merchandise in a merchandising company is correct?

Merchandise inventory includes raw materials, work in process, and finished goods.

Merchandise inventory is only recorded when goods are manufactured internally.

Merchandise inventory consists of goods purchased for resale to customers.

Merchandise inventory is not reported as a current asset on the balance sheet.

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Verified step by step guidance

Step 1: Understand the concept of merchandise inventory. Merchandise inventory refers to goods that a merchandising company purchases with the intention of reselling them to customers. It does not include raw materials, work in process, or finished goods, which are typically associated with manufacturing companies.

Step 2: Clarify the distinction between merchandising and manufacturing companies. Merchandising companies buy finished goods for resale, while manufacturing companies produce goods using raw materials and labor, resulting in categories like raw materials, work in process, and finished goods inventory.

Step 3: Analyze the statement 'Merchandise inventory is only recorded when goods are manufactured internally.' This is incorrect because merchandise inventory is recorded when goods are purchased for resale, not manufactured internally.

Step 4: Evaluate the statement 'Merchandise inventory consists of goods purchased for resale to customers.' This is correct because it aligns with the definition of merchandise inventory in a merchandising company.

Step 5: Review the statement 'Merchandise inventory is not reported as a current asset on the balance sheet.' This is incorrect because merchandise inventory is reported as a current asset, reflecting its role in the company's short-term operations and liquidity.