Inventory & Merchandising
From a credit sale to the net-realisable-value write-down.
Inventory is where the income statement and the statement of financial position meet: every unit is either still on the shelf, an asset, or sold, part of cost of goods sold — and the accounting has to decide which. The chapter opens with how a merchandising business differs from a service business, then works the two record-keeping systems side by side. Under the perpetual system every purchase, return, discount and sale updates inventory as it happens — and a stock count shows how much went missing along the way. Under the periodic system cost of goods sold is worked out at the period end from purchases and a physical count. You then apply the cost formulas — FIFO and weighted average — that decide which costs leave with the goods sold and which stay in closing inventory, and the IAS 2 rule that inventory may never be carried above what it can be sold for. It closes with full merchandising cases that run from the journal to the statements. An optional final section repeats the transaction journals and a periodic income statement in US GAAP presentation.
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01Merchandising Foundations
a merchandiser buys goods to resell, so start with what the invoice actually says — credit terms, and the costs that belong in inventory.
02The Perpetual System
a perpetual system updates Inventory and Cost of Goods Sold on every transaction, so the balances are always current — and every sale has two halves.
03Recording Perpetual Transactions
record a real run of transactions end to end — purchases, returns, discounts and sales — then post them to the ledger.
04The Periodic System & Cost of Goods Sold
a periodic system never touches Inventory during the year, so cost of goods sold has to be computed: opening inventory, purchases, freight, less the year-end count.
05Cost Formulas
FIFO and Weighted Average: when identical units cost different amounts, the cost formula decides which costs go to cost of goods sold and which stay in inventory. IAS 2 allows FIFO and weighted average, never LIFO.
06Lower of Cost and Net Realisable Value
IAS 2 measures inventory at the lower of cost and NRV, so inventory can be written down — and, unlike US GAAP, written back up.
07Integrated Merchandising Cases
full cycles now — post a trading month through the ledger, close it, and carry the inventory figure into the statements.
08Merchandising under US GAAPOptional · US GAAP
for US GAAP students — perpetual purchases, returns, discounts and sales, and a periodic multi-step income statement, in US GAAP presentation. IFRS students can skip this section.