Sky Accountants Ballarat & Bookkeepers Ballarat: Manufacturing Accountants: Raw Materials and Finished Goods Inventory

Manufacturing companies have two different types of inventory: raw materials and finished goods. Raw materials inventory is used in the production of goods while finished goods inventory is used for what the company produces and sells. At Sky Accountants Ballarat & Bookkeepers Ballarat, our goal is to empower you to become a better, more finance-focused and well-rounded entrepreneur. Contact manufacturing accountants at or 1300 328 855

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Raw materials include plastics, metals, fabrics and wood used in producing goods. A manufacturer usually acquires raw materials from more than one supplier or producer. Raw material costs are recognised in the inventory at the time of acquisition and becomes a current asset on the company’s balance sheet. Eventually, raw materials are pulled from the inventory and used in the production of finished goods.

When manufacturers use direct and indirect materials in production, the materials transition into works-in-progress. Once the raw materials are being used, the reduction in raw materials inventory must be shown by crediting the current asset account and debiting the works-in-progress inventory. Indirect materials must be removed by crediting raw materials inventory and applying the debit to a factory overhead account.

Finished goods are products that the manufacturer relies on to earn money by selling them to retailers and wholesalers. Typically, once production is complete, the works-in-progress account will be credited and the finished goods inventory account will be debited. In short production lines, the inventory can be moved directly from raw materials to finished goods in accounting.

When a manufacturer sells finished goods, he or she earns revenue. As you recognise revenue, you need to recognise the costs of goods sold as well. For manufacturers, the revenue is equal to the price per unit multiplied by the amount of units sold. Cost of goods sold or COGS include the material costs and labour applied to each sold unit. The cost to producing your finished goods reduces revenue which result in gross profit.

Manufacturing Accountants

As you look for different ways to grow and improve your business, seeking professional advice could prove to be an important and helpful decision.

You can click here to speak to a business, accounting and bookkeeping firm. We will give you a call to know more about your needs. We will explain to you how we can improve your business.

We would love to help you formulate investment strategies and streamline your processes to take your business to the next level.  Our goal is to help you grow your business, find ways to invest more and increase your productivity.

Here are two other ways we help business owners grow their business:

  1. Take our free online assessment and see how much your business is currently worth (free 30page detailed report included)
  2. If you are looking to change Accountants or need advice on how to grow your business, organise a 1on1 session with a Sky Business Expert here

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