Final answer:
A company using a cost accounting system typically maintains only two inventory accounts: Finished Goods Inventory and Work in Process Inventory.
Step-by-step explanation:
In cost accounting, the structure of inventory accounts is designed to track the various stages of production. Finished Goods Inventory represents the completed products awaiting sale, while Work in work-in-process inventory accounts for partially completed goods still undergoing production. This simplified approach helps streamline accounting processes, providing a clear snapshot of the company's production status and inventory levels.
Work Process Inventory includes the costs associated with raw materials, labor, and overhead for products in the production pipeline. The sum of these costs is the total manufacturing cost of the unfinished goods.
As production progresses, these costs are transferred to the Finished Goods Inventory upon completion. This approach facilitates efficient cost tracking and ensures that the financial statements accurately reflect the value of finished goods ready for sale.
By maintaining only two inventory accounts, companies can enhance financial reporting clarity and ease of management. This simplified system is particularly beneficial for organizations with straightforward production processes. It enables a more focused analysis of inventory-related costs and aids in strategic decision-making related to production and sales.
In summary, the utilization of only Finished Goods Inventory and Work in Process Inventory accounts in a cost accounting system offers a practical and effective way to manage and report on inventory, providing a concise overview of production stages and inventory levels.