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Finished goods are products that have undergone all production processes but have not yet been sold. They serve as inventory for a shop or remain in storage. The cost of finished products is important to calculate profit and cheaper alternatives may need to be found. The “just in time” shipping process helps sell products immediately.
“Finished goods” are products that have undergone all production processes, but have not yet been sold. An asset of this type can serve as inventory for a shop or remain in storage in a warehouse. These assets don’t make any money for a business until they’re purchased, even if they count as assets.
There are three names for a product as it undergoes the manufacturing process. The “raw materials” are used to make the final product. “Unfinished goods” have not yet completed the manufacturing process. The “finished goods” are the third and last phase of the manufacturing process, when there is no more work to be done on the product.
Examples of finished products include clothing, processed foods and appliances. Something like an orange is not considered finished, even though it is sold and shipped. Orange juice, however, requires processing and would be listed as finished.
In accounting, finished products are used to calculate profit. When the goods have not yet been sold, they are recorded in the balance sheet as a debt. After the sale, it’s a credit. At the end of a fiscal period, the difference between the goods sold and the goods in stock is calculated. This resulting number is the gross profit of the business.
Calculating the cost of finished products is an important part of starting a successful business. The amount of time it takes to produce and the cost of raw materials and labor all need to be considered. If the cost of any of these items is greater than the price of the final product, cheaper alternatives will need to be found. Otherwise, the company could go into debt or go bankrupt.
Because they create no profit until they’ve been sold, some manufacturers have developed the “just in time” shipping process so that a product can be sold immediately rather than sitting on the floor of a warehouse. Companies hold sales and cut prices to keep their finished products in circulation in stores. Conversely, assets that have not been sold will also count towards a company’s total assets. Even if they haven’t been sold yet, the overall value of a finished product is used when adding up the value of a business. This can help predict future cash flows or be compared to past assets to measure a company’s growth.
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