ABSTRACT
In accounting terms, inventory is considered an asset, because it represents something that can be sold and converted to cash. Orders that have been shipped and invoiced, but are as unpaid, are also considered assets. Accounts receivable and inventory are generally the largest component of Current Assets. The category of Current Assets is used in most calculations of liquidity that assess the ability of a company to cover its current obligations by converting both inventory and receivables into cash to pay bills. Unless a manufacturer has unlimited resources and piles of cash, finished goods inventory represents a decision to convert raw materials and labor into a product that cannot be sold immediately over another product that could be. Inventory that can be converted into cash in the short term is an asset. The key words in that phrase are short term. One year is certainly not short term in business environment.
