This video discusses the flow of costs for a manufacturer.
The process begins when manufacturing companies acquire raw materials (Raw Materials Inventory). At some point, the raw materials are placed into production and labor (along with other manufacturing costs, known as manufacturing overhead) is incurred to begin manufacturing the product. At this stage, the Raw Materials Inventory account is reduced and the Work-in-Process Inventory account is increased. The Work-in-Process Inventory consists of partially-completed units. Once the units are completed, the Work-in-Process Inventory account is reduced and the Finished Goods Inventory account is increased. When the units are finally sold, the Finished Goods Inventory account is decreased as the units are expensed through Cost of Goods Sold on the Income Statement.
Thus, the costs flow through several inventory accounts (raw materials, work-in-process, and finished goods) on the Balance Sheet before ultimately being expensed through Cost of Goods Sold.
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