Question

Identify the following: Inventory?


Asset


Liability


Expenses


Income

Answer 1

Inventory refers to the goods and materials that a business holds for the purpose of resale or production. It is considered an asset on the balance sheet because it represents resources that can generate revenue in the future.

Here's a brief overview of how inventory fits into the context of assets, liabilities, expenses, and income:

1. **Asset**: Inventory is classified as a current asset, as it is expected to be sold or used within one year.

2. **Liability**: Liabilities represent the obligations of a business to pay debts or provide services. Inventory is not a liability; it is an asset.

3. **Expenses**: When inventory is sold, its cost is recognized as an expense (Cost of Goods Sold) on the income statement. Until the inventory is sold, it is not considered an expense.

4. **Income**: Income is generated when inventory is sold for more than its cost. The sale of inventory contributes to a company's revenues, impacting its profitability.

In summary, inventory is an asset on the balance sheet until it is sold, at which point it becomes an expense on the income statement.