Principles of Accounting
Principles of Accounting
12th Edition
ISBN: 9781133626985
Author: Belverd E. Needles, Marian Powers, Susan V. Crosson
Publisher: Cengage Learning
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Chapter 6, Problem 1DQ
To determine

Describe the ways by which merchandise inventory impact faithful representation and classification.

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A company can choose either perpetual or periodical inventory system for the representation and classification of merchandise inventory.

Perpetual inventory system continuously tracks the quantity and cost of inventory. But, periodical inventory system does not track the inventories continuously. 

Merchandise inventory is classified under current assets on the balance sheet and cost of goods sold (part of merchandise inventory) is reported on the income statement.              

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