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What is Merchandise Inventory?

Merchandise inventory is the array of products that retailers have on hand and ready for sale. It's the lifeblood of any retail operation, reflecting both potential revenue and investment in goods. Accurately managing this inventory is crucial for business success, ensuring customer satisfaction and optimizing profits. How does effective inventory management impact a retailer's bottom line? Join us to uncover the connection.
H. Bliss
H. Bliss

Merchandise inventory is an accounting term referring to the sellable goods a company has on hand and can sell to consumers. Sometimes referred to as just inventory, it is considered to be a type of asset. For retail companies that sell merchandise, merchandise inventory appears on the business's balance sheet. It is an assessment of the total value of the physical merchandise a company has on hand and available for sale.

A balance sheet is essentially a summary of the financial picture of a company at a certain date and time. Along with assets, including merchandise inventory, a balance includes the company's liabilities and the total worth, also known as net worth, of the company. Investors use information from a balance sheet like merchandise inventory to make an assessment of the value and financial stability of a company.

Man checking inventory with a portable device.
Man checking inventory with a portable device.

Keeping track of merchandise inventory is an important part of loss prevention. Reducing loss of inventory can include increasing company security, sales floor supervision, and regular inventory of company merchandise by an independent inventory company. Increasing company security to reduce loss of inventory involves supervision of inventory from when it is received to when it leaves the store in a sale. By leaving no movement of the merchandise unaccounted for, a company can reduce losses and may be able to identify and eliminate the source of losses when they occur.

Merchandise inventory should be counted at a time when it is least likely to interfere with customers.
Merchandise inventory should be counted at a time when it is least likely to interfere with customers.

Checking merchandise quantities upon arrival is a vital step in ensuring no inventory was lost or forgotten in shipment. Once inventory is in a store, the business can use methods like surveillance, employee bag checks, and attentive customer service to reduce loss of inventory through theft. Since most inventory theft comes from employees, employee bag checks and sales floor supervision can be an embarrassing, but necessary, routine.

Tools used to keep track of merchandise inventory include sales records, inventory software, and inventory devices. To ensure an accurate assessment of merchandise inventory that is independent from the people charged with managing the inventory, a company might hire an outside company that provides professional inventory services. When an outside inventory service assesses inventory for a company, it usually means they travel to the location where the inventory is stored and count the inventory in person. This is sometimes done by hand with a paper ledger to record amounts, but is most frequently done with a computer system and devices that scan merchandise tags to record inventory.

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Discussion Comments


@JimmyT - I have a friend that works in the unloading dock for one of the major wholesalers. He has told me that since they receive so many items on a daily basis, it is nearly impossible to check each shipment for quality.

They can usually check to make sure all the necessary boxes arrived, but that doesn't always happen. Once they start unloading boxes there are usually quite a few broken items from what he tells me. Depending on the agreement from the supplier, sometimes the products will be replaced, but sometimes the store has to eat the cost.

I'm sure a clothing store receives far fewer damaged items compared to some other businesses, but overall I would say that missing and damaged inventory could be a considerable cost to a store if there isn't a strict inventory control procedure in place.


Does anyone have any experience using inventory control software?

I run my own hardware store, so I have thousands of different types of items I have to keep track of. Thus far, I've used a basic spreadsheet on my computer, but I am starting to think that maybe a more professional program would give me a more structured and effective inventory system.

What is the basic price of a program that can keep track of a small business' inventory, and would it really be worth the investment? Plus, how intuitive are they to use? I'm not a computer expert by any means.


@TreeMan - I agree with most of what you are saying; however, I think as a business grows making solid connections with employees becomes more and more difficult.

Like the article mentions, merchandise shows up on a balance sheet, and for large corporations with shareholders, sometimes extreme measures like bag searches are necessary to meet the bottom line.

I've never been directly involved in operating a store of any kind, but I would like to know how much a store loses every year due to simply misplacing items or receiving damaged items.


The article spends of good deal of time discussing how employees factor into a business' inventory. As a former manager, I can say that employee satisfaction is an oft overlooked factor that plays into whether someone will steal.

Of course, an employee being happy won't always lead to them being a perfect employee. However, if someone knows that your trust in them will be broken if they get caught stealing an item, they will usually think twice about taking something.

In today's world, I think we spend too much time worrying about stopping things like theft after they happen instead of taking preventative measures. Does anyone else have experience with this issue?

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    • Man checking inventory with a portable device.
      By: endostock
      Man checking inventory with a portable device.
    • Merchandise inventory should be counted at a time when it is least likely to interfere with customers.
      By: spflaum
      Merchandise inventory should be counted at a time when it is least likely to interfere with customers.