Final answer:
Yes, Merchandise inventory is a balance sheet asset.
Step-by-step explanation:
Merchandise inventory refers to the goods or products that a company purchases or produces to be sold to customers. This inventory is a crucial part of a company's operations and is reported on the balance sheet as an asset.
The value of merchandise inventory is determined by the cost of acquiring or producing the goods. This includes the cost of materials, labor, and overhead expenses. Once the goods are sold, the cost is transferred from the inventory account to the cost of goods sold account on the income statement.
The balance sheet is a snapshot of a company's financial position at a specific point in time. It is divided into three main sections: assets, liabilities, and equity. Assets are resources that the company owns and can use to generate revenue. Liabilities are obligations that the company owes to others. And equity represents the owners' stake in the company.
Merchandise inventory falls under the category of current assets on the balance sheet. This means that it is expected to be converted into cash within one year. Other examples of current assets include cash, accounts receivable, and prepaid expenses.
The value of merchandise inventory is reported on the balance sheet at its cost. However, if the market value of the inventory is lower than its cost, the inventory is written down to its lower market value. This is known as the lower of cost or market (LCM) rule and ensures that inventory is reported at its most conservative value.
In conclusion, merchandise inventory is a balance sheet asset because it represents a company's investment in goods that will be sold to generate revenue. It is an important indicator of a company's financial health and is crucial for decision-making and analysis.