Yes, merchandise as inventory is a current asset. A current asset is any asset that will provide an economic benefit for or within one year. Inventory production is typically closely correlated with demand, so inventory usually sells within one year of being produced. Therefore, inventory/merchandise is a current asset.
Is Merchandise Inventory a Current Asset? FAQs
Yes, merchandise inventory is typically classified as a current asset on a company's balance sheet. This classification is based on the fact that this type of asset will usually be converted into cash within one year or less.
When merchandise inventory is purchased, cash is consumed for the purchase. This results in a decrease in cash flow until the sale of the inventory produces income that can be used to replenish the cash balance.
Merchandise inventory affects profitability by increasing costs associated with purchasing and storing it, and reducing profits when markdowns or write-offs are necessary due to overstocking or slow-selling items.
Having too much merchandise inventory on hand can lead to financial losses due to slow turnover of stock or having to make markdowns on obsolete items. Additionally, carrying too much inventory can tie up funds that could be used elsewhere.
The most obvious benefit of having merchandise inventory is the potential to increase profits through selling items. Additionally, it provides greater flexibility in offering various products and services as well as ensuring stock levels are sufficient to satisfy customer demand.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
