Q: I feel like this is a trick. How can labor be removed from physical inventory?
A: Labor along with materials are cost components of products in process of completion. The full cost of labor and materials is included in the completed product. The completed product is then classified as inventory on the balance sheet until the product or service it is sold. Once it is sold, the total cost of the product held in inventory, including all labor cost embedded in it, is transferred to the income statement as cost of goods sold.
Course overview: Recording Transactions and Creating the Balance Sheet and Income Statement