Purchases and purchase returns in the inventory ledger must be recorded as what?

The correct answer relates to how purchases and purchase returns are recorded in the inventory ledger. When goods are purchased, they are typically intended for resale, thus becoming an asset for the business. Inventory is classified as a current asset on the balance sheet because it represents the items a business plans to sell in order to generate revenue.

Purchase returns refer to the items that are returned to suppliers, which decreases inventory. These returns effectively reduce the asset value recorded in the inventory ledger.

Therefore, purchases and purchase returns directly affect the inventory balance, which is categorized under assets. The inventory ledger tracks how much inventory is available and helps manage the total cost of inventory, aligning with the nature of assets rather than expenses, liabilities, or sales. This classification is essential for accurate financial reporting and inventory management.