Mastering Accounting For Inventory Part I

To fully understand a company’s inventories, you can master it through knowing the accounting of it. Inventory refers to assets with the intent to sell in a normal course of business, with future production for future sales (as goods to be sold). COGS are the expenses related to inventory.

​Merchandising inventory is purchasing finished forms of inventory, where manufacturing is production related, consisting of raw materials, work-in-process, and finished goods. Raw Materials represents the cost components purchased to be part of the finished product (i.e. composite leather for a basketball), work-in-process refers to products not yet complete (i.e. partially completed parts in a basketball assembly line), and finished goods represents the full completion of the manufacturing process (i.e. the basketball boxed and intended for sale). And in terms of cost flow, you have Raw Materials, Direct Labor, and Manufacturing Overhead which flows into Work-In-Process, which then flows into Finished Goods.