How is inventory defined in accounting?

Inventory in accounting is defined as the goods and materials that a company holds for the purpose of selling them in the normal course of business operations. This definition encompasses various forms of inventory, including raw materials, work-in-progress, and finished goods.

In inventory accounting, these items are considered current assets because they are expected to be sold within a year, contributing to the company's revenue generation. Keeping track of inventory is crucial for financial reporting and helps businesses manage their supply chain effectively, ensuring they can meet customer demand without overstocking or understocking.

The other options refer to different financial concepts. Cash reserves for operational expenses do not reflect the physical products held for sale, while total assets represent everything a company owns, and total liabilities encompass the debts and obligations owed by the business. Hence, these choices do not align with the specific definition of inventory in the context of accounting.