Multiple Choice
In a classified balance sheet, how is merchandise inventory typically classified?
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2. Transaction Analysis
Classified Balance Sheet Components
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In a classified balance sheet, in terms of liquidity, inventory is typically reported as which type of asset?
A
A noncurrent asset
B
An intangible asset
C
A long-term investment
D
A current asset
Verified step by step guidance1
Understand the classification of assets on a classified balance sheet, which groups assets based on their liquidity or how quickly they can be converted into cash.
Recall that current assets are assets expected to be converted into cash, sold, or consumed within one year or the operating cycle, whichever is longer.
Recognize that inventory consists of goods held for sale in the ordinary course of business and is expected to be sold within the operating cycle.
Since inventory is expected to be sold and converted into cash within the operating cycle, it is classified as a current asset.
Therefore, on a classified balance sheet, inventory is reported under current assets due to its liquidity and role in the operating cycle.
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