Classify the following goods according to whether or not they should be recorded as inventory in financial accounting: Raw materials held for production.

• A. Only if they are finished goods.
• B. Only if they are sold to customers.
• C. No, they should not be recorded as inventory.
• D. Yes, they should be recorded as inventory.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of inventory in financial accounting. Inventory includes goods that are held for sale, in the process of production, or used in the production of goods or services. This includes raw materials, work-in-progress, and finished goods.
2. Step 2: Analyze the classification of raw materials. Raw materials are the basic inputs used in the production process to create finished goods. They are considered part of inventory because they are essential for production and have future economic benefits.
3. Step 3: Evaluate the statement 'Only if they are finished goods.' This is incorrect because inventory includes raw materials, work-in-progress, and finished goods, not just finished goods.
4. Step 4: Evaluate the statement 'Only if they are sold to customers.' This is incorrect because inventory is recorded regardless of whether the goods are sold or not. Inventory represents goods held for sale or production, not just sold goods.
5. Step 5: Confirm the correct answer: 'Yes, they should be recorded as inventory.' Raw materials held for production are part of inventory because they are assets that will be used to generate future economic benefits through the production process.