Manufacturing companies have several different accounts compared to service and merchandising companies. These include three types of inventory accounts—raw materials, work‐in‐process, and finished goods—and several long‐term fixed asset accounts. A manufacturing company uses purchased raw materials and/or parts to produce a product for sale. At a point in time, the company's inventories consist of raw materials
, those materials and parts waiting to be used in production; work‐in‐process
, all material, labor, and other manufacturing costs accumulated to date for products not yet completed; and finished goods
, the cost of completed products that are ready to be sold. The value of each type of inventory is disclosed in a company's financial statements. The amounts may be shown individually on the face of the balance sheet or disclosed in footnotes.
In the long‐term asset section of a manufacturing company's balance sheet, one would expect to find factory buildings and equipment and possibly a small tools account. A manufacturer often has patents for its products or processes. The capitalized costs associated with a patent would be included in the intangible asset section of the balance sheet. The income statement for a manufacturing company is similar to that prepared for a merchandising company. In calculating cost of goods sold, only the finished goods inventory account is used, as shown.