STUDENTS' CORNER - 92

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.