Question

When a merchandising company sells inventory, it will

a- recognize only an expense.
b-recognize only revenue.
c-recognize revenue and expense.
d-not recognize revenue or expense.

Answer 1

When a merchandising company sells inventory, it recognizes both revenue and expense, specifically as sales revenue and cost of goods sold.

Step-by-step explanation:

When a merchandising company sells inventory, it recognizes revenue and expense. Revenue is recognized from the sale of goods to the customer, which is reported on the company's income statement as sales revenue.

Simultaneously, the cost associated with the goods that were sold, known as cost of goods sold (COGS), is also recognized as an expense. COGS is the direct costs attributable to the production of the goods sold by a company. Hence, the correct answer to the student's question is c- recognize revenue and expense.