Question

Describe the flow of employee labor, both direct and indirect, through the inventory accounts. (90-200 words minimum)

Answer 1

All the costs mentioned previously for Custom Furniture are product costs (also called manufacturing costs). Product costs are recorded as an asset on the balance sheet until the products are sold, at which point the costs are recorded as an expense on the income statement. To record product costs as an asset, accountants use one of three inventory accounts: raw materials inventory, work-in-process inventory, or finished goods inventory. The account they use depends on the product’s level of completion. They use one expense account—cost of goods sold—to record the product costs when the goods are sold

Thanks