Merchandise Inventory
Definition: Goods purchased for resale
Scope:ModerateDifficulty:Easy
Goods purchased for resale
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Purchase inventory on account | ||
| Buy $6,000 of merchandise from supplier. | ||
| Merchandise InventoryAsset+ | $6,000 | |
| Accounts PayableLiability+ | $6,000 | |
| Asset increases; liability created (perpetual system). | ||
| 2. Record cost of goods sold | ||
| Sell goods costing $3,500. | ||
| Cost of Goods SoldExpense+ | $3,500 | |
| Merchandise InventoryAsset− | $3,500 | |
| Expense recognized; inventory reduced. | ||
| 3. Purchase returns | ||
| Return $800 of defective goods. | ||
| Accounts PayableLiability− | $800 | |
| Merchandise InventoryAsset− | $800 | |
| Liability and inventory both decrease. | ||
| 4. Freight-in | ||
| Pay $250 shipping on purchased goods. | ||
| Merchandise InventoryAsset+ | $250 | |
| CashAsset− | $250 | |
| Freight-in is part of inventory cost. | ||
T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.
Merchandise InventoryAsset account — goods purchased for resale. Under the perpetual method, credits reduce inventory when goods are sold.AssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$6,000.00
$250.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$3,500.00
$800.00
$1,950.00
Accounts PayableAccounts PayableLiabilityAn obligation the business owes to others. Normal balance: credit. Credits increase, debits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$800.00
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$6,000.00
Normal bal. ▶
$5,200.00
Cost of Goods SoldExpense account — the direct cost of merchandise sold to customers. Debits increase the balance. Only recorded at the time of sale under the perpetual method.ExpenseA cost incurred in the process of earning revenue. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$3,500.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$3,500.00
CashAsset account. Debits increase the balance. Credits decrease the balance.AssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$250.00
$250.00
DurationShort-Term
External Links
- Inventory — Wikipedia