Which of the following statements regarding merchandise inventory is false?

• A. Merchandising companies typically have only one inventory account on their balance sheet.
• B. Merchandise inventory includes raw materials, work in process, and finished goods.
• C. Merchandise inventory represents goods purchased for resale in their finished form.
• D. Merchandise inventory appears as a current asset on the balance sheet of a merchandising company.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of merchandise inventory. Merchandise inventory refers to goods that a merchandising company purchases for resale in their finished form. It is distinct from manufacturing inventory, which includes raw materials, work in process, and finished goods.
2. Step 2: Review the characteristics of merchandising companies. Merchandising companies typically have only one inventory account on their balance sheet, as they deal with finished goods ready for resale rather than multiple stages of production.
3. Step 3: Analyze the classification of merchandise inventory on the balance sheet. Merchandise inventory is classified as a current asset because it is expected to be sold within the normal operating cycle of the business.
4. Step 4: Compare the statements provided in the problem. Identify the statement that incorrectly describes merchandise inventory. Specifically, note that merchandise inventory does not include raw materials, work in process, and finished goods, as these are associated with manufacturing companies.
5. Step 5: Conclude that the false statement is the one claiming merchandise inventory includes raw materials, work in process, and finished goods, as this is not applicable to merchandising companies.