Why does the Income Statement not reflect changes in inventory until the products are sold?

The Income Statement reflects revenues and expenses based on realized transactions, which is why inventory changes are not recorded until the products are sold. Inventory represents the cost of goods that are held for sale; it is recorded on the balance sheet as a current asset until the inventory is sold.

At the point of sale, the cost associated with that inventory transitions from the balance sheet to the Income Statement as Cost of Goods Sold (COGS). This matching principle ensures that expenses are recognized in the same period as the revenues they help to generate. Thus, the expenses associated with inventory are only recorded upon sale, which directly influences the profitability reflected in the Income Statement for that particular period.

In contrast, options concerning inventory being a current asset, changes being reflected annually, or being expensed over multiple periods do not accurately capture the underlying concept of revenue recognition and matching principles. The key understanding is that the expense recognition relating to inventory doesn't take place until a sale is made.