Manufacturing account
A manufacturer's accounting system will be similar to that of other types of business's financial statements. For example, the end-of-year statements will include an income statement and a balance sheet. In a manufacturing partnership or company, there will also be an appropriation account to show how profits have been dstributed. The main different is that it is necessary to work out just how much was spent on producing goods rather than on purchasing them.
A manufacturing account is used to find the total cost of producing goods.
Direct costs are manufacturing costs that can be associated with an individual product (raw materials and wages paid to employees who make the produce). These two added together are known as prime cost.
Indirect costs are other costs that can be linked to the manufacturing process (rent/utilites). Indirect costs are independent of the quantity of goods being produced, but still have to be paid. These costs added together are known as factory overheads.
Workers wages
Raw materials
indirect cost
Rent
Insurance
Salaries for manager
Prime cost
Factory overhead
Total cost
Direct costs
It is unlikey that all products will be completey finished at the moment when the end-of-year financial statements are prepared. There will be some products that are not completed. The cost of undinished goods is called "work-in-progress". The opening and closing working-in-progress will have to be taken in to consideration when calculating the cost of raw materials consumed.
Income statement of manufacturing account
An income statement of manufacturing account is designed to show gross profit and the profit made for the year.
Balance sheet of manufacturing account
The balance sheet of a manufacturer is the same as the balance sheet of other types of business. There is one important difference: the manufacturer's balance sheet will show three figures of invertories:
1. Raw materials
2. Work in progress
3. Finished goods
