What classification is the "Inventory" account?

Inventory is classified as an asset because it represents goods that a business holds for sale in the ordinary course of operations. Assets are resources owned by a business that provide future economic benefits, and inventory fits this definition as it can be converted into cash through sales.

When inventory is recorded on the balance sheet, it reflects the value of unsold goods at a given point in time, contributing to the overall assets of the company. It plays a crucial role in the business’s ability to generate revenue; without inventory, a retail or manufacturing business would not be able to function effectively as it would have no products to sell.

In contrast, liabilities represent obligations that a company must settle in the future, expenses reflect the costs incurred in the process of earning revenue, and revenue accounts record the income generated from sales of goods or services. Therefore, the classification of inventory as an asset is essential for understanding the financial position and operational capacity of a business.