How is the Inventory Asset account affected when recording the purchase of an inventory item?

When recording the purchase of an inventory item, the Inventory Asset account increases, reflecting the additional value added to inventory. This increase is calculated by multiplying the quantity of the items purchased by their unit cost, resulting in a total cost that is then added to the Inventory Asset account. This accounting practice ensures that the financial statements accurately represent the value of the inventory held by the business, as this asset contributes to the overall financial position of the company.

In contrast, options that suggest the account decreases or remains unchanged do not accurately capture the nature of inventory accounting. The Inventory Asset account should reflect the growing value as items are purchased and added to the stock available for sale. Adjusting the account only during physical counts eliminates the ongoing tracking necessary for accurate financial reporting, which is critical in managing cash flow and assessing business performance.