Which of the following best describes how inventory of services differs from inventory of products in accounting?

• A. Services are always recorded as inventory at cost, while products are recorded at market value.
• B. Services cannot be stored as inventory, while products can be inventoried until sold.
• C. Both services and products are recorded as inventory on the balance sheet until delivered.
• D. Products cannot be inventoried, but services can be stored for future sale.

Answer: (B)

Verified step by step guidance

1. Understand the concept of inventory in accounting: Inventory refers to goods or products that a company holds for sale in the ordinary course of business. It is recorded as an asset on the balance sheet until sold.
2. Recognize the difference between products and services: Products are tangible items that can be physically stored and inventoried, while services are intangible and cannot be stored for future use.
3. Analyze the options provided in the question: Evaluate each statement to determine its accuracy based on the definition and characteristics of inventory.
4. Clarify why services cannot be stored as inventory: Services are consumed at the point of delivery and cannot be physically stored or inventoried like products. This is a key distinction in accounting.
5. Conclude that the correct answer is: 'Services cannot be stored as inventory, while products can be inventoried until sold,' as it accurately reflects the fundamental difference between services and products in accounting.