Definition: Goods in process inventory, also called work in process inventory, is an inventory account used by manufacturers for goods that are not fully finished being produced. In other words, goods in process inventory include products that are still being worked on or are in some stage of the production process.
What Does Goods in Process Inventory Mean?
Unlike retailers, manufacturers typically use three different inventory accounts: raw materials, goods in process, and finished goods. Since manufacturers physically produce their inventory, they have to keep separate accounts for inventory along each stage of production. Let’s take Ford Motor Company for example.
Ford has foundries and other metal suppliers that ship raw materials to its factories on a daily basis. These raw materials consist of materials that haven’t been processed or machined at all. Raw steel rods and sheet metal are good examples of raw materials.
After Ford gets the raw materials are received and delivered to the factory floor, machinists and assembly line workers start fabricating car parts out of these raw materials. Now that the raw materials have been worked on, they are transferred from the raw materials account into the goods in process account.
After the car parts or goods in process make their way through the entire assembly line, they are turned into a finished car. At this point, the car is transferred from the work in process account into the finished goods account. It can then be sold to a dealer or distributor around the world.