Finished goods inventory

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Finished goods inventory
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Finished goods inventory also known as tangible current assets are materials that are purchased to be able to use them for own needs, processed or manufactured goods and services ready for sale or semi-finished products, work in progress and purchased goods that will be resold in the raw state. These assets must be designated for sale or exploitation no longer than 12 months after the date of poverty. It is also possible that the normal operating cycle specific to the unit lasts longer than 12 months. In this case, we focus on the consumption of purchased materials during the period.

Record keeping methods

The person setting the rules for recording business transactions regarding inventory trading is the head of the business unit. Entries regarding these records are described in the company's chart of accounts. An enterprise is required to specify a method for recording inventory valuation. There are several approaches to inventory records:

  • quantitative approach (turnover and stocks are presented in natural units),
  • quantity and value (turnover and sums are recognized in natural and monetary units),
  • value recognition (turnover and stocks are presented in monetary units).

Stock classification and characteristics

Materials are current assets intended for consumption for all types of economic activity. They are obtained from suppliers. They are completely consumed during one production cycle, while their value will be recognized in the balance sheet as manufactured products. As the material you can include: raw materials, packaging, fuel, basic and auxiliary materials, spare parts and waste from production.

  • Work-in-progress contains a collection of semi-finished and work-in-progress products, which, when combined with finished products, form work products. Work in progress is a product that cannot be stored due to the unfinished production procedure.
  • Semi-finished products are best suited for storage in a warehouse; they are partially processed products, awaiting further technological processes or production activities. It also often happens that they are transferred for sale due to the

fact that their processing takes place in another company.

  • Finished products are those that comply with quality standards and have been approved by the technical control, meet the

acceptance conditions by contractors and are directly suitable for selling products of their own production. These include, for example, services rendered, design work, and finished goods. They only occur in manufacturing companies.

  • Goods are purchased goods, which, without processing interference, will be resold in the unaltered state to further contractors.

Stock of finished products in the flow of information

According to Hosang Jung, the stock of finished products and its availability greatly improves customer contact and builds an information path by itself “With the rapid development of information and communication technologies, inventory information sharing between a manufacturer and its suppliers is becoming easier than ever. In line with this trend, we focus on the virtual warehouse where only inventory information on all of the material provided by the suppliers can be stored and shared. Unlike traditional supplier management, the manufacturer constructs and operates this virtual warehouse to check the inventory levels of all the required material at the same time, but each supplier can access only the information about its inventory. This virtual warehouse-based approach can foster a tight relationship between the manufacturer and its suppliers and can handle suppliers as a single company without a large investment in constructing a physical warehouse." (Hosang Jung, Sunkjae Jeong, 2018)

The virtual warehouse-based policy

In order to determine whether establishing the virtual warehouse-based policy is profitable and useful from the business point of view the research was carried out. This is elaborated on by Hosang Jung and Sunkjae Jeong: "The virtual warehouse-based approach seems to be more economically sustainable. To investigate the effect of inventory information sharing via the virtual warehouse, we developed and analyzed a system dynamics-based simulation model. The experiment results show that sharing the inventory information of the suppliers via the virtual warehouse can help manufacturers to achieve better operational performance on several important measures, such as the reduction of finished goods inventory, parts purchasing quantity, degree of backlogs, and total cost.” According to the described research, the virtual warehouse is the most profitable idea and can contribute to preventing generaing excessive costs in the enterprise. (Hosang Jung, Sunkjae Jeong, 2018)


Author: Kamila Nawara