Multiple Choice
Manufacturing overhead costs include which of the following?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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1. In accounting, what is the term for goods that a business purchases in order to sell?
A
Merchandise inventory
B
Prepaid expenses
C
Property, plant, and equipment
D
Accounts receivable
Verified step by step guidance1
Understand the concept of merchandise inventory: Merchandise inventory refers to goods that a business purchases with the intention of reselling them to customers. These goods are considered current assets on the balance sheet because they are expected to be sold within a year.
Differentiate merchandise inventory from prepaid expenses: Prepaid expenses are payments made in advance for goods or services that will be received in the future, such as insurance or rent. These are not goods intended for resale.
Compare merchandise inventory with property, plant, and equipment: Property, plant, and equipment (PP&E) are long-term assets used in the operation of a business, such as buildings, machinery, and vehicles. These are not goods purchased for resale.
Contrast merchandise inventory with accounts receivable: Accounts receivable represents money owed to the business by customers for goods or services already provided. It is not a physical inventory of goods.
Conclude that the correct term for goods purchased to sell is merchandise inventory, as it directly aligns with the definition provided in step 1.
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