Certain Merchandise That a Firm May Acquire May Be Inventory

question 52

Essay

Certain merchandise that a firm may acquire may be inventory or supplies.Accounting treats them differently as to the matching criteria used.
Required:
a.Describe the situation where merchandise would be considered inventory. How would the firm account for the costs of the merchandise?
b.Describe the situation where merchandise would be considered supplies. How would the firm account for the costs of the merchandise?

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Definitions:

Income Statements

Financial statements that show a company's revenue, expenses, and profits over a specific period of time, typically a quarter or a year.

Common-Size Financial Statements

Financial statements that present all line items as percentages of a common base figure, facilitating comparison across periods or companies.

Actual Transactions

The completed deals or exchanges of goods, services, or financial instruments between parties.

Financial Ratios

Quantitative measures derived from financial statements used to assess a company's performance, financial health, and profitability.