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Manufacturing Account Overview Guide

Manufacturing accounts are essential for manufacturing businesses, prepared alongside trading and profit loss accounts to detail prime and production costs. They include three types of inventory: raw materials, work in progress, and finished goods, and consist of three sections: manufacturing accounts, trading accounts, and balance sheet accounts. The manufacturing account calculates production costs, which are then used in the trading section to determine gross and net profits, while the balance sheet incorporates all types of inventory.

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11 views16 pages

Manufacturing Account Overview Guide

Manufacturing accounts are essential for manufacturing businesses, prepared alongside trading and profit loss accounts to detail prime and production costs. They include three types of inventory: raw materials, work in progress, and finished goods, and consist of three sections: manufacturing accounts, trading accounts, and balance sheet accounts. The manufacturing account calculates production costs, which are then used in the trading section to determine gross and net profits, while the balance sheet incorporates all types of inventory.

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briannahunter518
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© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Principle of Accounts

Manufacturing Account
Intro to Manufacturing Accounts

For manufacturing businesses a manufacturing account is prepared in addition


to the trading and profit loss account.

These accounts tend to be used internally and are rarely shown to outside
people.

Manufacturing accounts are prepared to show prime cost (Direct materials,


Direct Labour and Direct expenses) and production cost (Prime cost plus factory
overheads).
Manufacturing Accounts - Inventory

For manufacturing businesses they carry three (3) types of inventory:

Raw materials - Materials used in manufacturing a product.

Work in progress - Unfinished products still in the production process.

Finished goods - Final end product


Manufacturing Account

In preparing a manufacturing account it contains three (3) sections.

Section A - Manufacturing Accounts

Section B - Trading Accounts

Section C - Balance Sheet Accounts

Tip: learn the format in sections


Section A - Manufacturing Accounts

In “section A” the production cost is calculated and transferred to the trading


section. (See example next slide)

Items typically found in this section are:

Opening and Closing Raw materials, purchases, carriage inwards, return


outwards of raw materials, Direct labour, Direct expenses (eg royalties), Factory
overheads and opening and closing work in progress. (See format on slide 7 - 8)
Section A - Manufacturing Account (Eg)
Section A - Manufacturing Account (Eg Cont’d)
Section B - Trading Section

In this section we will calculate our gross and net profits.

In this section we bring down our “production cost of goods completed” and add
it to the cost of goods sold section.

Items usually found in the trading section are:

Sales, Opening and Closing Finished goods, production cost, Administrative


Expenses, Selling & Distribution expenses and Financial Charges.

See next 3 slides for examples


Trading account - Section B (Example 1)
Trading account - Section B (Example 2)
Trading account - Section B (Example 2) Cont’d
Balance Sheet - Section C

The balance sheet is exactly the same as all balance sheets. The ONLY
difference is that you will include all three (3) types of inventory. Which are Raw
materials, Work in progress and Finished goods (Closing).

See example next slide:


Apportionment of Expenses

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