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Chapter 5: Q5-22RQ (page 294)

What financial statement is merchandise inventory reported on, and in what section?

Short Answer

Expert verified

The merchandise inventory is reported in the current asset section of thebalance sheet.

Step by step solution

01

Meaning of Balance Sheet

A balance sheet refers to the report that represents the position of a business concern’sassets and liabilitieson a particular date. As it reflects the entity's financial position, it is also known as a positional statement.

02

Reporting of merchandise inventory on the financial statements

Themerchandise inventory is reported on the balance sheet of a company. It is reported under thecurrent assetsection of the positional statement because the benefit of merchandise inventory is consumed by the business within oneaccounting period.

Whereas, the merchandise sold by the company is reported on the income statement’scost of goods soldsection.

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Most popular questions from this chapter

Click Computers has the following transactions in July related to the sale of merchandise inventory.

July 12 Sold computers on account for \(8,000 to a customer, terms 3/15, n/30. The cost of the computers is \)4,800.

26 Received payment from the customer on the balance due.

Journalize the sales transactions for Click Computers assuming the company uses the perpetual inventory system.

Journalize the following transactions for Soul Art Gift Shop. Explanations are not required.

Feb. 3 Purchased \(3,300 of merchandise inventory under terms 3/10, n/EOM, and FOB shipping point.

7 Returned \)900 of defective merchandise purchased on February 3.

9 Paid freight bill of \(400 on February 3 purchase.

10 Sold merchandise inventory on account for \)4,700. Payment terms were 2/15, n/30. These goods cost the company $2,350.

12 Paid amount owed on credit purchase of February 3, less the return and the discount.

28 Received cash from February 10 customer in full settlement of their debt.

Describe the operating cycle of a merchandiser.

What is inventory shrinkage? Describe the adjusting entry that would be recorded to account for inventory shrinkage.

On December 31, Jack Photography Supplies estimated that approximately 2% of merchandise sold will be returned. Sales Revenue for the year was \(80,000 with a cost of \)48,000. Journalize the adjusting entries needed to account for the estimated returns.
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