Goods in process is a product that has undergone value added processing that is not ready to be sold to customers. This is one of the three types of inventory with the other's being raw materials and finished goods. The following are illustrative examples of goods in process.
Raw MaterialsA firm that produces raw materials may use goods in process to indicate inventory that is not yet ready to be sold to customers. For example, a wood products company that has harvested 4000 timbers that have not yet been milled may account for the costs of the harvesting under goods in process.
PartsA bicycle company that manufacturers its own seats may account for the unit costs of these seats under goods in process if they are used to build bicycles as opposed to being directly sold to customers.
AssembliesPartially assembled goods such as a train manufacturer that has 12 trains in various stages of build at a point in time. The cost of goods in process is calculated with the same methods used to account for the unit costs of finished goods. For example, raw materials, labor and manufacturing overhead that is directly attributable to each unit may be included.
Quality ControlA firm may not consider its goods to be finished until they have undergone a quality control process. For example, a shoe manufacturer that has a 1 day manufacturing process and a 1 day quality control process may include all units in both of these processes under goods in process.
PackagingA unit may not be considered a finished good until it has been packaged. For example, a cosmetics manufacturer that sends drums of moisturizer cream to a packaging partner may consider this to be goods in process inventory until they receive back the packaged product.
ConstructionA similar term, work in progress, is used to describe construction projects that are partially completed but not ready for sale to the customer. For example, a house builder that has 90 houses under construction may account for all the costs of these houses under work in progress. This typically has similar tax treatment as goods in process and is used for longer running work that spans months or years.
ContractsWork completed for service and construction contracts can be accounted for on the balance sheet with an entry such as work in process or work in progress that is similar to goods in process. For example, an IT consultant that has delivered 1000 hours of consulting to a client but will not be paid until the work is completed may account for labor costs and expenses as work in progress.
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