Merchandise – What is merchandise?
Recording your assets and tracking their value doesn’t have to be complicated. Find out more about managing company assets with Debitoor invoicing software.
Merchandise is an inventory asset unique to businesses that sell or distribute goods that have been purchased in their completed state or require only minor assembly.
Businesses involved with manufacturing may sell finished goods to consumers, but only after they have carried out some form of processing or production. Service-orientated companies also do not deal with merchandise.
Merchandise in accounting
Within accounting, merchandise is considered a current asset because it is usually expected to be liquidated (sold, turned into cash) within a year.
When purchased, merchandise should be debited to the inventory account and credited to cash or accounts payable, depending on how the merchandise was paid for.
If the goods or products are purchased by a customer within the same accounting period as the merchandise is purchased, the cost should be transferred to cost of goods sold, recorded on the income statement as an expense within the period the sale was made.
If the goods or products are not sold within that accounting period, the cost should remain on the balance sheet as a current asset until it is sold.
If the market value of merchandise falls below its recorded cost, you should reduce the cost to match the current market value, and record the difference as an expense.
To accurately record the total amount of cost of inventory, it is important to take into account the three places merchandise might be located: in transit from suppliers, in storage, or in a location owned by a third party.
There are several ways to track inventory, but the easiest way is the perpetual inventory system, which has the capacity to track merchandise that is not currently on site.
Merchandise and Debitoor
With Debitoor invoicing software, processing your expenses and keeping track of inventory assets is simple and intuitive.
Whenever you create a new expense, you’ll be given the option to mark it as an asset. Then, select ‘Inventory Purchase’ and ‘Finished Goods’ to record your inventory in your invoicing and accounting system.