What Is Goods-in-Process?

Goods-in-process is part of an inventory account on the 澳洲幸运5官方开奖结果体彩网:balance sheet of a manufacturin🍎g company. It relates 🅰to partially completed goods that are somewhere in the manufacturing process and not yet ready for sale.

Goods-in-process is also known as "work-in-process" or "澳洲幸运5官方开奖结果体彩网:work-in-progress."

Understanding Goods-in-Process

Unlike some other companies, manufacturers physically produce their inventory, sourcing 澳洲幸运5官方开奖结果体彩网:raw materials, and then moving them into producꦇ🔯tion or assembly mode until they are completed and ready to sell to customers.

澳洲幸运5官方开奖结果体彩网:Accounting rules demand a 𓃲breakdown of th🧜is process, requiring these companies to keep separate accounts for the goods they stock as they enter each stage of production.

Goods-in-process is one of three manufacturing inventory classifications and can be described as an intermediate state between the other two: raw materials and finished goods. Inventory, a 澳洲幸运5官方开奖结果体彩网:current asset on the ☂company's balance sheet, is the total𓆉 of the three states of production. 

The numerical accounting for goods-in-process at the end of any period is the beginning balance of good-in-process, plus the value of raw materials transferred into the account, minus the ending balance of goods-in-process. Included in this account are costs of direct labor and material, as well as an allocation of manufacturing overhead.

Once production of these goods is completed, they are moved to the finished inventory account and then, later on, registered as cost of goods sold (COGS). Typically, the goods-in-process sub-account𝐆 carries the smallest amount among the three inventory classifications if the company engages in high production volumes of whatever it makes.

Example of Goods-in-Process

Deere & Company (DE), a manufacturer of farming, snow removal, lawn mowing, and construction equipment, purchases raw materials, mainly consisting of steel products, steel, and iron castings, forgings, plastics, electronics, and ready-to-assemble componenꦑts, on a regular basis. Once these materials are sh💦ipped in, factory floor machinists and assembly line workers begin to fabricate equipment out of them to sell to the company’s customers.

As soon as work commences on the raw materials, they are transferred to the goods⭕-in-process account. Thatജ remains the case until the materials are transformed into the completed item, at which point they are then moved across to the finished goods account.

For its 2018 澳洲幸运5官方开奖结果体彩网:fiscal year (FY), Deere & Co. recorded an inventory value of $6.1 billion. In the 澳洲幸运5官方开奖结果体彩网:note to its financial statements, this figure was broken down into $2.2 billion in raw materials and supplies, $0.8 billion in goods-in-process, or work-in-process, and $4.8 billion in finished goods and parts. 

After a $1.6 billion adjustment to "澳洲幸运5官方开奖结果体彩网:last-in, first-out" (LIFO) value, the inventory account totaled $6.1 billion. Note that the goods-in-process sub-account is a minor fraction of the total.

Benefits of Goods-in-Process

Changes in goods-in-process can tell us a lot about how a company is faring. An uptick could indicate a rush to the factory floor to cater to an increase in demand for the company’s products. That’s generally a good omen for 澳洲幸运5官方开奖结果体彩网:shareholders, and when widespread, the overall economy.

Decreases are generally viewed less favorably. What they tend to 🐟signal is a slowdown in production, reflecting weakening demand.

Special Considerations

Investors should seek to determine how a company measures goods-in-process and other inventory accounts. 澳洲幸运5官方开奖结果体彩网:Accountants sometimes employ different calculaꦚtion strategies, so goods-in-process are ♈not always comparable across companies.