What does "inventory" refer to in accounting?

Inventory in accounting specifically refers to the goods and materials that a business holds for the purpose of resale. This includes finished goods that are ready to be sold, as well as raw materials and work-in-progress items that will eventually be sold as part of a finished product. Inventory is a crucial component of a company's assets on the balance sheet and directly impacts the cost of goods sold in the income statement.

By effectively managing inventory, a company can ensure it has enough products to meet customer demand while minimizing excess stock that can lead to increased storage costs or waste. This concept is fundamental to businesses involved in merchandising, manufacturing, or distribution sectors, where the inventory represents a significant portion of the operating costs.

The other options pertain to different assets or categories in financial accounting. Long-term investments are assets intended for long-term holding rather than for immediate sale. Cash and cash equivalents represent the most liquid assets available to a company. Uncollected receivables refer to amounts owed to a business from customers for sales made on credit, which differ from inventory as they are not physical items held for sale.