Which statement below correctly explains what merchandise inventory is?

• A. Merchandise inventory refers to goods a company owns and intends to sell to customers.
• B. Merchandise inventory refers to the cash a company holds for daily operations.
• C. Merchandise inventory includes only goods that have already been sold to customers.
• D. Merchandise inventory is the total value of a company's fixed assets.

Answer: (A)

Verified step by step guidance

1. Understand the term 'merchandise inventory': Merchandise inventory refers to goods that a company owns and intends to sell to customers as part of its normal business operations. It is classified as a current asset on the balance sheet.
2. Eliminate incorrect options: Review each statement provided and identify any that do not align with the definition of merchandise inventory.
3. Analyze the first option: 'Merchandise inventory refers to goods a company owns and intends to sell to customers.' This matches the definition of merchandise inventory and is likely correct.
4. Evaluate the second option: 'Merchandise inventory refers to the cash a company holds for daily operations.' This is incorrect because cash is not considered merchandise inventory; it is classified as a separate current asset.
5. Review the third and fourth options: 'Merchandise inventory includes only goods that have already been sold to customers' is incorrect because inventory refers to unsold goods. 'Merchandise inventory is the total value of a company's fixed assets' is also incorrect because fixed assets are long-term assets, not inventory.