How to Calculate Finished Goods Inventory & Why it’s Important for Business
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Understanding Inventory: Finished Goods, WIP & Raw Materials with Journal Entries 1. Finished Goods: A Shirt in a Clothing Store Scenario: A clothing store has finished goods—a shirt—ready for sale. The shirt cost the store $20 to make and is sold for $40. Step 1: When the Shirt is Sold (Revenue Side) When the shirt is sold, the store records sales revenue and recognizes that it has earned $40 from the sale. Journal Entry: Debit: Accounts Receivable (or Cash) $40 (The store will either receive c
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Understanding Inventory: Finished Goods, WIP & Raw Materials with Journal Entries 1. Finished Goods: A Shirt in a Clothing Store Scenario: A clothing store has finished goods—a shirt—ready for sale. The shirt cost the store $20 to make and is sold for $40. Step 1: When the Shirt is Sold (Revenue Side) When the shirt is sold, the store records sales revenue and recognizes that it has earned $40 from the sale. Journal Entry: Debit: Accounts Receivable (or Cash) $40 (The store will either receive c
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