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