Finished goods inventory is reported on which financial statement?

• A. Income statement (as an operating expense)
• B. Statement of retained earnings (as an adjustment to beginning retained earnings)
• C. Balance sheet (as a current asset)
• D. Statement of cash flows (as a cash inflow from operations)

Answer: (C)

Verified step by step guidance

1. Understand the nature of finished goods inventory: it represents the value of completed products that are ready for sale but have not yet been sold.
2. Recall that inventories are considered current assets because they are expected to be converted into cash within the operating cycle of the business.
3. Identify the financial statements and their purposes: the Income Statement reports revenues and expenses, the Statement of Retained Earnings shows changes in equity, the Statement of Cash Flows reports cash inflows and outflows, and the Balance Sheet reports assets, liabilities, and equity at a point in time.
4. Recognize that finished goods inventory is not an expense or a cash flow but an asset, so it should be reported on the Balance Sheet.
5. Conclude that finished goods inventory is reported on the Balance Sheet under current assets, reflecting its role as a resource owned by the company.