Select the statements below that correctly describe the flow of costs in a merchandiser's accounting cycle. Beginning inventory + net purchases = Merchandise available for sale. Merchandise that is purchased becomes an asset reported on the balance sheet. Merchandise that is sold becomes an expense reported on the income statement. Merchandise purchased is an expense and is reported on the income statement. Enventory + Cost of goods sold = Total merchandise available for sale.

Beginning inventory + net purchases = Merchandise available for sale is spot on! This equation is the foundation for understanding how goods flow through the accounting cycles of merchandisers, allowing them to assess their stock levels accurately. Merchandise that is sold does indeed become an expense reported on the income statement, known as cost of goods sold (COGS). This transition helps businesses track expenses effectively and understand the profitability of their operations. Just remember, purchased merchandise initially appears as an asset until it’s sold – then it transforms into an expense!