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PRESENTATION OF MERCHANDISE INVENTORY ON THE BALANCE SHEET

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Merchandise inventory is customarily presented on the balance sheet immediately below receivables.  Both the method of determining the cost of the inventory (lifo, fifo, or average) and the method of valuing the inventory (cost, or lower of cost or market) should be disclosed.  Both are significant to the reader.  The details may be disclosed by a parenthetical notation or a footnote.  The use of a parenthetical notation is illustrated by the following partial balance sheet:

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It is not unusual for large enterprises with diversified activities to use different costing and pricing methods for different segments of their inventories.  The following note from the balance sheet of a merchandising chain is illustrative: "Merchandise inventories in stores are stated at the lower of cost or market, as calculated by the retail method of inventory.  Merchandise in warehouses and in transit and food products inventories in restaurants are stated at cost."