2018-07-21
Now, we are going to know some basic facts about ‘Finished Goods
Inventory’
As the name itself clearly suggests, it is a list of finished
goods. The goods that have been
manufactured completely or the goods that are purchased in completed form are
known as the finished goods. They are ready for sale but yet to be sold.
The goods you purchase in completed form are generally called
merchandise.
These finished goods are looked upon as short-term assets because
these goods can and will be sold in a very short time, say, within a year.
Any inventory of goods by the very nature of its financial inclusion
becomes an integral part of the financial account ; in other words, it will find a place in the balance sheet of
the company. It means the cost of the
finished goods must be specifically mentioned there. How to arrive at the cost of the inventory of
the finished goods? To work out the cost of the inventory of the finished
goods, you will have to take into account the costs of the raw materials and of
the work in process; you must take also
the cost of the direct labor and the over head that go into the process of
finished goods. And the cost of the inventory of the finished goods is to be
shown as a single inventory in the balance sheet.
We know that the finished goods move from the place of manufacture to
the place of consumption passing through many intermediaries like traders, trading partners, stockiest,
distributors and dealers, C & F Agents etc. And each one of the stakeholders
will have at their own level of the supply chain an inventory of the finished
goods.
This fact tells us that an inventory of
the finished goods is an essential business document that cannot be dispensed
with by any enterprise.
There is much to talk about accounting process in respect of finished
goods but that will not be necessary for our present purpose.
