The goods that merchandise businesses purchase are called merchandise inventory. When purchased inventory is classified as an asset. All costs incurred to acquire merchandise and ready it for sale are included in the inventory account.
Examples of costs incurred in getting inventory ready for sale:
- Shipping and handling costs
- Transit insurance
- Storage costs
Inventory costs are referred to as product cost. Just like the name implies, product costs is the cost of inventory plus the costs of getting it ready for sale.