Manufacturing firms must accumulate the costs for making product. The costs for making product include materials, which are included in materials inventory.

Additional costs, such as direct labor and factory overhead, must be added to materials during production.

The work-in-process inventory account accumulates these costs during production.

At the completion of production, the work-in-process costs are transferred to the finished goods inventory account.

Upon sale, the finished goods costs are transferred to cost of goods sold, to be matched against the revenue from sale.

Since merchandisers only purchase goods for resale, they use a single inventory account, Merchandise Inventory.

Upon sale, the merchandise inventory costs are transferred to cost of merchandise sold, to be matched against the revenue from sale. Thus, accounting for the sale of completed goods is similar for both types of firms.