{"id":731,"date":"2021-08-27T07:18:00","date_gmt":"2021-08-27T12:18:00","guid":{"rendered":"https:\/\/www.shipbob.com\/uk\/blog\/merchandise-inventory\/"},"modified":"2025-12-25T21:11:33","modified_gmt":"2025-12-25T21:11:33","slug":"merchandise-inventory","status":"publish","type":"blog","link":"https:\/\/www.shipbob.com\/uk\/blog\/merchandise-inventory\/","title":{"rendered":"Merchandise Inventory Guide: What It Is & Why You Need It"},"content":{"rendered":"\n

Table of Contents<\/p>

** Minutes<\/p><\/div><\/div>\n

What is merchandise inventory?<\/a><\/p>\n\n\n\n

Examples of merchandise inventory<\/a><\/p>\n\n\n\n

Why merchandise inventory is important for accounting<\/a><\/p>\n\n\n\n

Accounting for merchandise inventory<\/a><\/p>\n\n\n\n

Calculating the value of merchandise inventory<\/a><\/p>\n\n\n\n

How ShipBob makes it easy to track & account for your merchandise inventory<\/a><\/p>\n\n\n\n

Merchandise inventory FAQs<\/a><\/p>\n\n\n\n

<\/a><\/p>\n<\/div>\n\n\n\n

What\u2019s the status of your ecommerce company\u2019s financial health? <\/span><\/p>\n\n\n\n

To find out, take a look at how quickly your merchandise inventory is being turned into cash. <\/span><\/p>\n\n\n\n

By constantly monitoring and managing inventory flow from purchase to sale, along with the value of each SKU<\/a>, you can devise strategies to improve profits and efficiently meet the growing demand for your company\u2019s products.<\/span><\/p>\n\n\n\n

Along with fulfilment, inventory management is something ShipBob takes seriously and provides tools and resources to help fast-growing brands manage their merchandise inventory to <\/span>avoid unnecessary stockout or overstocking costs.<\/span><\/p>\n\n\n\n

Learn how to fully manage your merchandise inventory, how to calculate your inventory value, and how a partnering with a tech-enabled 3PL like ShipBob can help.<\/p>\n\n\n\n

What is merchandise inventory?<\/h2>\n\n\n\n

Merchandise inventory refers to the value of goods in stock, whether it\u2019s finished goods<\/a> or raw materials that are ready to sell, that are intended to be resold to customers. Think of it as a holding account for inventory that is expected to be sold soon. <\/span><\/p>\n\n\n\n

For ecommerce businesses, inventory is a business owner\u2019s most important asset, and its value is accounted for on a business\u2019s balance sheet at the end of an accounting period or fiscal year.<\/span><\/p>\n\n\n\n

Merchandise inventory includes any goods meant for resale, whether they are in transit from the supplier, in the retailer\u2019s hands, or stored in a warehouse or distribution centre<\/a> ready to be sold.<\/span><\/p>\n\n\n\n

Examples of merchandise inventory<\/h2>\n\n\n\n

Let\u2019s say a furniture store buys desks that will be sold directly to the end customer. The store also buy computers for employees to use regularly. Here, the desks can be categorized as merchandise inventory, but not the computers. <\/span><\/p>\n\n\n\n

Though both are considered assets, the employee computers are labelled as a \u201cfixed asset\u201d and accounted for separate from inventory when looking at a company\u2019s balance sheet. Merchandise inventory is considered a \u201ccurrent asset\u201d as the business plans to sell the inventory for cash. <\/span><\/p>\n\n\n\n

Let\u2019s look at an example of a distributor: ABC Inc. buys motherboards with the intent to sell to a computer manufacturer at a higher price. Though the motherboards are items that are used to make a finished product, the motherboards are still considered merchandise inventory since they are being sold to another business for cash. <\/span><\/p>\n\n\n\n

Note: There are merchandising platforms<\/a> like Toolio that automate critical merchandising workflows, provide real-time insights, and enable cloud-based collaboration.<\/p>\n\n\n\n

Why merchandise inventory is important for accounting<\/h2>\n\n\n\n

Since merchandise inventory is almost always an online brand\u2019s biggest assets, managing and tracking inventory<\/a> accurately is crucial since it directly impacts a brand\u2019s financial well-being. <\/span><\/p>\n\n\n\n

Inventory accounting<\/a> can be a stressful business process to manage, which is why it\u2019s important to consult with a CPA<\/a> as you grow your business.<\/span><\/p>\n\n\n\n

However, that doesn\u2019t mean there aren\u2019t resources that a brand can implement to better track merchandise inventory, such as understanding inventory turnover rate<\/a> and other important inventory reporting<\/a> metrics.<\/p>\n\n\n\n

By making merchandise inventory control and management a priority, you can reduce the risk of inventory shrinkage<\/a>, stockouts, or carrying too much inventory.<\/p>\n\n\n\n

For instance, merchandise inventory turnover is an indicator of how liquid your inventory is. A higher turnover rate shows that money is not unnecessarily tied up in dead stock<\/a> inventory, which also increases carrying costs<\/a>. <\/span><\/p>\n\n\n\n

Cost of goods sold (COGS)<\/a>, or the cost of procurement logistics<\/a>, is also factored in to determine gross profit once inventory is sold. <\/span><\/p>\n\n\n\n

Accounting for merchandise inventory<\/h2>\n\n\n\n

Tracking inventory and its value can be done by using several different inventory valuation methods<\/a>. Each method has its own set of pros and cons, and it really comes down to what method makes sense for your business. <\/span><\/p>\n\n\n\n

But whatever method you choose, you must follow that method consistently to ensure accuracy when it\u2019s time to report inventory. <\/span><\/p>\n\n\n\n

Typically, the <\/span>inventory valuation methods<\/span><\/a> adopted by retailers<\/a> are: <\/span><\/p>\n\n\n\n