What Are Finished Goods? - Definition & Example

Lesson Transcript
Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

In this lesson, learn what the difference is between products that are ready for sale, known as finished goods, and products that you have bought and are using right now. You'll also learn why using this term is important for businesses. Updated: 05/06/2021

What Are Finished Goods?

Think back to the last time you went to a store and went shopping. What did you see on the store shelves? If you went to the grocery store, you saw all kinds of fruits and vegetables, meats, and a whole lot of processed food items. If you went to a department store, you saw lots of clothes, shoes, games, electronics, and a whole bunch of other stuff. What do all these things have in common?

They're all called finished goods; these are goods or products that do not require any further processing and are ready to be sold. So, the items you see when you go shopping are finished goods. You know that when you purchase the item, it will do what you expect it to do. This is because the makers of the product are done working on it. There is no more processing that needs to be completed or changes that need to be made to the product.

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  • 0:04 What Are Finished Goods?
  • 0:52 Merchandise
  • 1:28 Food Products
  • 2:41 Other Products
  • 3:40 Lesson Summary
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A finished good is ready for sale; however, it hasn't been sold yet. After a product has been sold, it's considered merchandise. This means that once you have decided to purchase a finished good at the store and you have checked out with it, it's no longer called a finished good. You've bought it, and now it is merchandise.

The reason for this technicality is for accounting purposes. By differentiating between finished goods that haven't sold and between merchandise, businesses can determine how much inventory they have remaining versus how much profit they've made from selling the product.

Food Products

Your food products are finished goods. You have processed foods and unprocessed foods, but both can be finished goods.

Unprocessed Foods

Your unprocessed foods are done growing and have been prepped for sale. Fruits and vegetables have been picked and cleaned and are ready for you to eat or cook. The same goes with your meats. Your meat has been cut and packaged so it's ready to be used. Your eggs have been gathered, cleaned, and packaged in cartons. You know that when you purchase these food items, the seller or farmer has done all the processing needed to make it ready to be sold. Your unprocessed foods, however, have gone through little or no changes before being considered ready to sell.

Processed Foods

When a food is processed you end up with other types of finished goods such as cereals, canned tuna ready to be eaten, chips, salsa, soda, and many other items that you find in the aisles of your grocery store.

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