Certified Supply Chain Professional (CSCP) Practice Exam

True or False: Inventory is considered an asset until it is sold, at which point it contributes to net income.

1. True

2. False

3. Only sometimes true

4. Not applicable

The correct answer is: True

Inventory is indeed considered an asset until it is sold, at which point it is recognized as a cost of goods sold (COGS) and contributes to net income. In financial accounting, inventory is classified as a current asset on the balance sheet because it is expected to be converted into cash through sales within a year. While it remains as inventory on the balance sheet, it does not influence net income. However, once the inventory is sold, its cost is deducted from revenues, thus playing a significant role in calculating the net income for a financial period. This relationship between inventory and income is foundational in understanding inventory management and financial reporting in supply chain contexts.