Accounting Inventory

Although the accounting cycle and the basic accounting principles are the same for companies that sell merchandise and companies that provide services, merchandising companies use several accounts that service companies do not use. The balance sheet includes an additional current asset called merchandise inventory, or simply inventory, which records the cost of merchandise held for resale. On balance sheets, the inventory account usually appears just below accounts receivable because inventory is less liquid than accounts receivable.

Music World Partial Balance Sheet June 30, 20X3


ASSETS


Current Assets


Cash

$10,000


Accounts Receivable

2,000


Inventory

37,000


Supplies

1,000


Prepaid Insurance

2,000


Total Current Assets

$52,000




Merchandising companies also have several specific income statement accounts designed to provide detailed information about revenues and expenses associated with salable merchandise.