What is the relationship between finished goods and unsold inventory?

Finished goods represent items that have completed the manufacturing process and are ready for sale but have not yet been sold. This means that they are indeed a category of unsold inventory. Unsold inventory encompasses all products that a company has on hand, including raw materials, work-in-progress, and finished goods. Therefore, finished goods naturally fall under the umbrella of unsold inventory until they are sold to customers.

When considering this relationship, it is crucial to understand that finished goods are not limited to being sold immediately; they can remain in inventory until they are purchased. Additionally, not all unsold inventory consists of finished goods, as it may also include materials that are still in the production process or raw materials that have not yet been used. The income statement is indeed affected by inventory levels since decisions regarding the sale of finished goods impact revenues and cost of goods sold calculations. Thus, the categorization of finished goods as part of unsold inventory reflects their pending sale status within a company's broader inventory management system.