Final answer:
A manufacturing company uses four main types of inventory accounts: Raw Materials, Work in Progress (WIP), Finished Goods, and Supplies Inventory. These help manage stock and reflect business activity, with levels potentially fluctuating based on economic conditions.
Step-by-step explanation:
A manufacturing company typically uses several different types of inventory accounts to manage and record their stock levels. These are:
- Raw Materials Inventory: includes all the basic materials that are to be used in production.
- Work in Progress Inventory (WIP): represents products that are in the process of being manufactured but are not yet complete.
- Finished Goods Inventory: comprises completed products that are ready to be sold to consumers.
- Supplies Inventory: consists of all the additional supplies that are necessary for the production but do not directly constitute a part of the products.
The amount of inventory on shelves can vary depending on the business cycle; it tends to decline when business is better than expected or rise when business is worse than expected. Accounting for inventory levels is crucial for assessing a company's financial health as well as for supplying information for production and sales strategies. It's worth noting that services have become a dominant part of the economy, with the manufacturing sector, which includes durable and nondurable goods, declining in terms of its share of GDP. However, inventory still plays a vital role in the overall economic landscape.