Finished goods inventory
In one sentenceProducts whose manufacture is complete and that are ready for sale but not yet sold. They appear at their production cost within inventory in current assets.
Simply put
A factory has three types of inventory: raw materials, work in progress and finished goods. The last is what is sold to customers.
When sold, its cost moves from inventory to cost of goods sold.
Worked example
A bottled water factory started the year with finished goods of 50,000 SAR, the cost of what it produced was 400,000 SAR, and 70,000 SAR was left at year end.
Opening finished goods50,000 SAR
+ Cost of goods finished during the year400,000 SAR
− Closing finished goods70,000 SAR
Cost of goods sold50,000 + 400,000 − 70,000 = 380,000 SAR
Formula: Opening + cost of goods finished − closing
Don't confuse it with
Work in processWork in progress is not finished yet and cannot be sold, while finished goods are ready for sale.