Introduction
Manufacturing businesses convert raw materials into work-in-progress and then finished goods before they're sold — and each stage carries its own cost that needs to be tracked accurately for correct inventory valuation and Cost of Sales. This guide walks through recording raw material purchases, tracking the conversion from Raw Materials to Work-in-Progress (WIP) to Finished Goods, recording the eventual sale, and the reports to use for monitoring your inventory and production costs.
How This Works in Bukku
In Bukku, the cost of Work-in-Progress and Finished Goods isn't calculated automatically from the raw materials consumed — that part is worked out manually. What Bukku can do is track your inventory quantities and values throughout the process, using Stock Adjustments:
Buying raw materials — recorded at Purchases > Bill, with Inventory Tracking enabled.
Consuming raw materials for production — recorded via Stock Adjustment, decreasing raw material quantity and increasing Work-in-Progress or Finished Goods quantity (you'll set the cost value manually at this step).
Selling the finished goods — recorded at Sales > Invoice as usual; Bukku calculates Cost of Sales based on the last cost value you set during the stock adjustment.
The rest of this guide walks through each of these steps in detail, including the double entries involved.
To illustrate, here's the example scenario used throughout this guide:
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1. Initial Setup
Before recording any transactions, set up your products and the account used to bridge cost between production stages.
1.1 Set Up Your Products
Products & Services > +New
Create the following as individual products at Products & Services, with Inventory Tracking enabled for each:
Raw Materials
Work-in-Progress (WIP)
Finished Goods
This ensures quantities and values for each stage are tracked separately in the system.
For this example, the Inventory Account for all three products is set to the default 1002 Inventory.
1.2 Create the Production Cost Transfer Account
Accounting > Chart of Accounts > +New
This account acts as a bridge — capturing any variance between what raw material cost was consumed and what value you assign to the resulting Work-in-Progress or Finished Goods.
Type: Cost of Sales
Name: Production Cost Transfer (you may also name this differently, e.g. "WIP Clearing Account")
2. Recording Raw Material Purchases
Purchases > Bills > +New
Select the Raw Material product created in Section 1.1, and key in the quantity and unit price. Since Inventory Tracking is enabled, the account will automatically default to the Inventory account set on that product (in this example, 1002 Inventory).
Using the example scenario — 10 units of Raw Material at RM3.50 per unit:
Double Entry:
Debit Inventory RM35
Credit Bank/Cash or Accounts Payable RM35 (depending on whether this is a cash purchase or a credit purchase from a supplier)
3. Converting Raw Materials → Work-in-Progress (WIP) → Finished Goods
Since Bukku doesn't automatically calculate or transfer cost between production stages, each conversion is recorded manually using Stock > Adjustments — decreasing the quantity of the stage being consumed, and increasing the quantity of the stage being produced. You'll need to estimate or standardise the cost value assigned at each stage, since the system doesn't link this for you.
3.1 Raw Materials → Work-in-Progress
Stock > Adjustments > +New
When raw materials are consumed for production, create a stock adjustment that:
Decreases the Raw Materials item
Increases the Work-in-Progress item
Using the example given, 10 units of Raw Materials are used to produce 5 units of Work-in-Progress, so the Adjustment entry will look like this:
Use 6002 Production Cost Transfer as the Adjustment Account.
Decrease the Raw Material by 10 units. The Unit Cost will automatically be based on the latest Unit Cost reflected in the Inventory Detail report — in this case, RM3.50 per unit.
Increase Work-in-Progress by 5 units.
The Unit Cost for Work-in-Progress requires manual calculation on your end. This example assumes the cost of creating 1 unit of Work-in-Progress is RM10.00.
Double Entry — Raw Materials decreasing:
Debit Production Cost Transfer RM35
Credit Inventory RM35
Double Entry — Work-in-Progress increasing:
Debit Inventory RM50
Credit Production Cost Transfer RM50
📌 The RM15.00 difference in the Production Cost Transfer account exists because Work-in-Progress is manually valued at RM50.00 while only RM35.00 of Raw Material was consumed. If this RM15.00 represents labour, overhead, or production cost, it should be supported by your own costing calculation (see Section 5 for how to clear this variance). If no extra cost should be capitalised, Work-in-Progress should instead be valued at RM35.00 total (RM7.00 per unit), so the Production Cost Transfer account clears to RM0.00.
3.2 Work-in-Progress (WIP) → Finished Goods
Stock > Adjustments > +New
Once production is completed, create a stock adjustment that:
Decreases the Work-in-Progress item
Increases the Finished Goods item
The step is similar to the previous one — just select Work-in-Progress and Finished Goods as the products.
As per the example given, 5 units of Work-in-Progress is used to create 5 units of Finished Goods, at RM10.00 cost per unit:
Set 6002 Production Cost Transfer as the Adjustment Account.
Decrease the Work-in-Progress by 5 units. Similar to Raw Materials in the previous step, the Unit Cost will automatically be based on the latest Unit Cost reflected in the Inventory Detail report — in this case, RM10.00 according to our example.
Increase Finished Goods by 5 units.
Similarly, the cost of completing Work-in-Progress to Finished Goods requires manual calculation on your end — this example estimates that 1 Finished Good costs RM10.00.
Double Entry — Work-in-Progress decreasing:
Debit Production Cost Transfer RM50
Credit Inventory RM50
Double Entry — Finished Goods increasing:
Debit Inventory RM50
Credit Production Cost Transfer RM50
4. Recording Sale of Finished Goods
Sales > Invoices > +New
When the completed item is sold, select the Finished Goods product in the sales invoice.
As per the example given, the Finished Goods product is sold at RM20.00 per unit:
The exact sales amount depends on the selling price entered in the invoice. The cost amount depends on the Finished Goods inventory cost recorded in Bukku — following the example used so far in this guide:
Double Entry:
Debit Accounts Receivable or Bank/Cash RM20 (depending on whether it's a credit sale or a cash sale)
Credit Sales Income RM20
Debit Cost of Sales RM10
Credit Inventory RM10
The Cost of Sales is based on the last Unit Cost of the product, as reflected in the Inventory Detail report:
📌 Refer to this article on how Bukku calculates Cost of Sales.
5. Monitoring Reports
Once purchases, conversions, and sales are recorded, use these reports to confirm everything is tracking correctly and to clear any cost variance along the way.
5.1 Profit & Loss
Reports > All Reports > Profit & Loss
Following the steps above, the Profit & Loss will show:
A Sales Income of RM20 from the 1 unit of Finished Goods sold
Cost of Sales valued at RM10, matching the unit cost of Finished Goods
A Production Cost Transfer of negative RM15, which came from converting Raw Materials into Work-in-Progress
5.2 Clearing the Production Cost Transfer Variance
Since this negative RM15 shouldn't be left sitting in Cost of Sales, it needs to be cleared with an adjustment.
Assuming the RM15 matches overhead expenses (labour cost, transportation, factory overhead, etc.) that haven't been recorded yet, the reversal entry is:
Accounting > Journal Entries > +New
Debit Production Cost Transfer RM15
Credit Accrued Production Cost RM15
📌 The Accrued Production Cost account should be set up as a Liability account.
Later, when the production cost is actually paid, record the payment:
Bank > Money Out > +New
Debit Accrued Production Cost RM15
Credit Bank / Cash RM15
Once this is recorded, the Profit & Loss will no longer show the negative Production Cost Transfer balance.
5.3 General Ledger
Reports > All Reports > General Ledger
Check the Inventory account to verify:
Raw Material purchased and consumed through stock adjustment
Work-in-Progress created through stock adjustment
Finished Goods created through stock adjustment and sold
Check the Production Cost Transfer account to verify:
Manual conversion from Raw Material to Work-in-Progress
Manual conversion from Work-in-Progress to Finished Goods
Any variance caused by the cost values you manually entered for Work-in-Progress or Finished Goods
6. Separate Inventory Accounts per Production Stage
By default, this guide uses a single 1002 Inventory account for all three products (Raw Materials, Work-in-Progress, Finished Goods). If you'd prefer each production stage to show as its own line on the Balance Sheet, you can set up separate inventory accounts instead.
📌 This step is optional if you're using the Perpetual Inventory method — Bukku already tracks each product's quantity and value separately, so this mainly gives you a clearer Balance Sheet breakdown. If you're using the Periodic Inventory method instead, separate accounts per stage are required — see Section 7.
Setup
Accounting > Chart of Accounts > +New
Create one account per production stage:
Then assign each account to its matching product in Products & Services, under Inventory Account:
Once set up, the General Ledger will show each stage's movement separately instead of one combined Inventory account:
Reports > All Reports > General Ledger
Inventory - Raw Materials:
Inventory - WIP
Inventory - Finished Goods
7. Using Periodic Inventory System
If your business uses the Periodic Inventory method instead of Perpetual, the setup is a little different — you won't record ongoing stock adjustments per transaction; instead, you'll key in a closing value at each period-end, and Bukku calculates the Cost of Sales from that.
Setup
Accounting > Chart of Accounts > +New
Create a separate inventory account for each production stage (Raw Materials, Work-in-Progress, Finished Goods):
📌 Whenever you create a new inventory account with the System Type set to Inventory, Bukku automatically generates the associated Inventory – Stock Opening and Inventory – Stock Closing accounts for that item — you don't need to create these separately.
Entering Closing Values
Stock > Periodic Values
At the end of each period, manually key in the closing value for each of the three inventory accounts:
Resulting Profit & Loss
Reports > All Reports > Profit & Loss
Bukku will automatically generate a Stock Opening and Stock Closing line for each production stage under Cost of Sales:
Frequently Asked Questions (FAQ)
1. Does Bukku have a Bill of Materials (BOM) feature?
No — Bukku doesn't automatically calculate how much raw material goes into one unit of Finished Goods. You'll need to work out the quantities and cost yourself, then apply them manually through Stock Adjustments as shown in this guide.
2. How do I know what cost to assign to Work-in-Progress or Finished Goods?
With a Bill of Materials (BOM) system, this would be calculated automatically from a defined recipe of raw materials and labour. Since Bukku doesn't have BOM, this depends on your own costing method and business setup instead — typically raw material cost plus an estimate for labour and overhead. Check with your accountant on the appropriate costing approach for your business, then apply that value consistently each time you do a Stock Adjustment.
3. Can I skip the Work-in-Progress stage if my production process doesn't have one?
Yes — if raw materials convert directly into Finished Goods without a distinct in-between stage, you can do a single stock adjustment straight from Raw Materials to Finished Goods.
4. Does the Production Cost Transfer variance always need to be cleared?
Not necessarily — only if the variance represents a real cost (like labour or overhead) that hasn't been recorded elsewhere. If you're confident your Work-in-Progress/Finished Goods values already reflect the true cost with no extra cost involved, the account should net to zero on its own without needing a reversal entry.
5. Should I use the Perpetual or Periodic Inventory method?
Perpetual (the main method in this guide) suits businesses that want to see real-time inventory quantity and value as transactions happen. Periodic suits businesses that are comfortable calculating and entering a closing stock value at each period-end instead, without tracking every movement in between.
