Inventory is recorded as which of the following on the company’s balance sheet?

• A. Current asset
• B. Noncurrent asset
• C. Current liability
• D. Owner's equity

Answer: (A)

Verified step by step guidance

1. Understand the definition of inventory: Inventory refers to goods and materials that a company holds for the purpose of resale or production. It is considered an asset because it represents economic resources owned by the company.
2. Determine the classification of inventory: Inventory is typically classified as a current asset because it is expected to be sold, used, or converted into cash within one year or the operating cycle of the business.
3. Review the balance sheet structure: The balance sheet is divided into assets, liabilities, and equity. Current assets are listed first under the assets section, followed by noncurrent assets.
4. Eliminate incorrect options: Noncurrent assets are long-term resources like property, plant, and equipment, which inventory does not fall under. Current liabilities represent obligations due within a year, and owner’s equity reflects the residual interest in the assets after deducting liabilities. Inventory does not fit these categories.
5. Conclude the correct classification: Based on the definitions and structure of the balance sheet, inventory is recorded as a current asset.