Which statement best defines inventory?

• A. Inventory, or stock, refers to the raw material a business uses in production, or finished goods ready to sell.
• B. Inventory, or stock, refers to assets acquired for the long-term benefit of the business.
• C. Inventory, or stock, refers to earnings a business makes per item sold.
• D. Inventory, or stock, refers to the cash a business holds for future use.

Answer: (C)

Inventory is the set of items a business holds for future sale or for use in production. It’s a current asset on the balance sheet and can include raw materials used to make products, work-in-progress, and finished goods that are ready to be sold. This is why describing inventory as raw materials used in production or finished goods ready to sell best captures what inventory represents.

The other ideas don’t fit as inventory: earnings per item sold is a measure of profit per unit (not a stored asset), cash is a separate asset category, and long-term assets are items held for more than a year rather than for sale in the normal course of business.