Finished Goods Journal Entry

Introduction

In the job order costing, the manufacturing company can move the work in process to the finished goods when it completes a job during the period. Likewise, the journal entry for finished goods is required to transfer the cost of work in process to the finished goods inventory account.

Later, when the goods are sold the company will need to record the cost of goods sold by reducing the balance of the finished goods inventory if it uses the perpetual inventory system.

For the periodic inventory system, the cost of goods sold is not recorded when the goods are sold. It is instead calculated after the company performs the physical count of the ending inventory, which usually occurs at the end of the period.

Finished goods journal entry

In job order costing, when a job is completed and products are ready for sale, the company can make the journal entry for finished goods by debiting the finished goods inventory and crediting work in process inventory.

Account	Debit	Credit
Finished goods inventory	$$$
Work in process inventory		$$$

The finished goods inventory account is a type of control account that controls the individual finished goods records in the finished goods subsidiary ledger.

With the perpetual inventory system, when the goods are sold, the company can make the journal entry to transfer the finished goods inventory to the cost of goods sold.

Account	Debit	Credit
Cost of goods sold	$$$
Finished goods inventory		$$$

Also, the sale account will be recorded at the same time of finished goods inventory as below:

Account	Debit	Credit
Accounts receivable/cash	$$$
Sales		$$$

Example

For example, with the job order costing, the manufacturing company ABC has completed a job with the goods that cost $30,000 during the month. The goods are later sold on credit for $50,000.

The company ABC uses the perpetual system to account for its inventory.

In this case, the company ABC can make the journal entry for finished goods when it is completed during the month as below:

Account	Debit	Credit
Finished goods inventory	30,000
Work in process inventory		30,000

Later, when the goods are sold, the company ABC can make the journal entry to transfer the finished goods to the cost of goods sold as below:

Account	Debit	Credit
Cost of goods sold	30,000
Finished goods inventory		30,000

The sale account will be also journalized at the same time for the amount of $50,000 as below:

Account	Debit	Credit
Accounts receivable	50,000
Sales		50,000