How is 'inventory' defined in accounting?

In accounting, inventory is fundamentally defined as goods and materials that are held for sale or production in a business. This includes finished goods that are ready for sale to customers, as well as raw materials that are used to manufacture products. It can also encompass work-in-progress items, which are products that are in the process of being manufactured but are not yet complete. This broad definition reflects the various stages of products within the supply chain and underscores the importance of inventory management for a business's operations and financial health.

By accurately categorizing inventory, companies can effectively track their assets, monitor cash flow, and assess their operational efficiency. Understanding inventory also plays a critical role when preparing financial statements, as it directly affects cost of goods sold and ultimately impacts profitability. Therefore, option B accurately captures the comprehensive nature of inventory in accounting.