Multiple Choice
In a classified balance sheet, inventory is generally classified as which of the following?
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2. Transaction Analysis
Classified Balance Sheet Components
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In a classified balance sheet, how is merchandise inventory typically reported?
A
As a property, plant, and equipment (PPE) asset
B
As a current asset
C
As a long-term investment
D
As an intangible asset
Verified step by step guidance1
Understand the classification of assets on a classified balance sheet, which separates assets into current assets, long-term investments, property, plant, and equipment (PPE), and intangible assets.
Recall that merchandise inventory consists of goods held for sale in the ordinary course of business, which are expected to be sold within the operating cycle or one year.
Recognize that current assets include cash and other assets that are expected to be converted into cash or used up within one year or the operating cycle, whichever is longer.
Since merchandise inventory is intended to be sold within the normal operating cycle, it is classified as a current asset rather than PPE, long-term investment, or intangible asset.
Therefore, on a classified balance sheet, merchandise inventory is typically reported under the current assets section.
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