Where would you record an increase in merchandise inventory?

Recording an increase in merchandise inventory involves understanding the accounting equation and the role of accounts within that equation. Merchandise inventory is categorized as an asset on a company's balance sheet.

When you increase merchandise inventory, you are actually increasing your total assets. In double-entry accounting, to increase an asset account, you debit that account. Therefore, when inventory increases, it is recorded as a debit to the merchandise inventory account. This reflects the economic reality that owning more inventory adds value to the assets of the business.

The other options do not apply to this situation because liabilities are not affected by an increase in inventory, and income would only be impacted when the inventory is sold, not when it is acquired. Assets are debited clearly in this case, making the chosen answer the appropriate action for recording an increase in merchandise inventory.