In a manufacturing company’s balance sheet, Finished Goods Inventory is classified as which type of account?

• A. A liability account representing amounts owed to suppliers
• B. A revenue account reported on the income statement as part of sales
• C. A contra-asset account that reduces Inventory on the balance sheet
• D. A current asset inventory account reported on the balance sheet

Answer: (D)

Verified step by step guidance

1. Understand the classification of accounts on the balance sheet: assets, liabilities, and equity.
2. Recall that Finished Goods Inventory represents products that are completed and ready for sale but not yet sold.
3. Recognize that inventory is considered an asset because it holds economic value that the company expects to convert into cash through sales.
4. Identify that Finished Goods Inventory is part of current assets since it is expected to be sold within the normal operating cycle (usually within one year).
5. Conclude that Finished Goods Inventory is classified as a current asset inventory account reported on the balance sheet.