Definition of Goods and Their Types

Definition: Goods are all products and physical items that commercial companies purchase from suppliers and manufacturers with the intention of reselling them to end customers. Goods are classified as current assets on the balance sheet and are considered the main source of revenue in commercial companies.

Types:

• Ready-made Goods: Finished products ready for immediate sale such as electronic devices, clothing, and furniture, requiring no additional processing and can be delivered directly to customers.
• Seasonal Goods: Products tied to specific seasons or occasions such as winter and summer clothing, holiday gifts, and school supplies, requiring careful planning for purchases and sales.
• Perishable Goods: Products susceptible to spoilage requiring special storage and quick sale such as food items, medicines, and cosmetics, requiring strict control over expiration dates.
• Durable Goods: Products that last long periods without spoilage such as household tools, equipment, and machinery, requiring larger storage spaces but with lower spoilage risks.
• Consumer Goods: Products for direct personal use such as food, beverages, and personal hygiene products, sold to end consumers.
• Production Goods: Raw materials, spare parts, and equipment sold to companies and factories for use in production or maintenance operations, requiring specialized technical knowledge.

Difference Between Goods and Merchandise

Goods represent a broad category including all movable physical items that can be bought and sold, including raw materials like iron and oil, semi-manufactured products in manufacturing processes, and completed items ready for consumption. This term is used across diverse economic contexts, from industrial production to international trade, covering the complete spectrum of physical products in the supply chain.

Merchandise refers specifically to final products that retailers purchase with the intention of reselling them to end consumers without additional modification. These are completed products displayed in stores, ready for immediate purchase and use, such as clothing in fashion stores or electronics in consumer stores.

The basic difference lies in scope and commercial purpose. While all merchandise consists of goods, not all goods are considered merchandise. Goods include production inputs and intermediate products, while merchandise represents only final products ready for retail sale. Iron inventory at a car factory represents goods, but final vehicles in the showroom are considered merchandise.

Goods Cost and Calculation Methods

Cost Components: Goods cost includes all expenses related to obtaining goods and making them ready for sale, such as purchase price, transportation and shipping costs, customs duties, insurance costs, and direct storage expenses.

Calculation Methods:

• Actual Cost: Recording the real cost of each batch
• Weighted Average: (Total Cost ÷ Total Quantity)
• First In, First Out: Oldest goods are sold first
• Last In, First Out: Newest goods are sold first

Basic Equation: Cost of Goods Sold = Opening Inventory + Purchases - Closing Inventory

Application: The calculation method affects cost of goods sold and profits, especially when prices fluctuate.

Goods Operations (Import, Shipping, and Distribution)

Import: The import process begins with identifying suitable suppliers and selecting products that meet local market needs. Prices, payment terms, and delivery conditions are negotiated, then purchase orders and binding commercial contracts are issued. The process requires obtaining required licenses and permits from relevant authorities, and following customs clearance procedures to ensure legal entry of goods.

Shipping: The shipping process includes selecting the most suitable transport method based on goods nature, distance, and cost, whether sea, air, or land transport. Goods are insured against all potential risks during transport, and appropriate packing and packaging operations are coordinated. The process includes tracking shipments and managing delivery schedules, and receiving goods at designated arrival points.

Distribution: The distribution phase begins with moving goods from arrival points to warehouses or various sales points. It requires managing an effective distribution network and planning optimal delivery routes to reduce costs and time. The process includes coordinating delivery to end customers and monitoring distribution quality and delivery times to ensure customer satisfaction.

Customs Processing and Special Goods

Customs Processing: Begins with submitting customs declaration and required documents to relevant authorities, followed by goods evaluation by customs officials to calculate due duties and taxes. Goods undergo customs inspection and document audit to ensure compliance with laws. After paying due duties, customs release is obtained and necessary certificates of origin and conformity are issued.

Special Goods: Hazardous materials require special licenses and safe handling procedures, while food materials need health inspection and compliance with food safety standards. Medicines require medical approvals and pharmaceutical licenses from health authorities, and electronics need technical compliance and safety certificates. Textiles require clear data about content and origin, and restricted merchandise need special import licenses from relevant ministries.

These special goods are subject to additional procedures including intensive inspection and temporary storage in special areas, with additional documents and special fees paid according to goods type and nature.

Goods Available for Sale

Definition: Total goods that a company can sell during a specific accounting period, consisting of inventory balance at the beginning of the period plus all purchases made during the same period.

Equation: Goods Available for Sale = Opening Inventory + Net Purchases

Example: A company started the month with inventory balance of 50,000 SAR, and purchased goods worth 80,000 SAR during the month. Goods Available for Sale = 50,000 + 80,000 = 130,000 SAR