Manufacturing Account – Those business organisations prepare manufacturing account where finished goods are manufactured from raw material. Manufacturing account is prepared to ascertain the cost of production of finished goods. Cost of production ascertained from manufacturing account, is transferred to trading account. Hence, a manufacturing concern prepares manufacturing account, profit and loss account and balance sheet for preparing its final accounts. In manufacturing account, cost of raw material and expenses incurred for converting it to finished goods are debited. The description of items to be shown in manufacturing account is as under:
Manufacturing Account Format
for the year ended ….
|To Opening Work-in-Progress||By Sale of Scrap|
|To Cost of Raw Material Consumed||By Work in Progress|
Add: Purchases of Raw
|By Cost of Production i.e.(balancing figure transferred to trading A/c)|
Less: Closing Stock
|To Factory Rent|
|To Factory Lighting|
|To Depreciation on Plant & Machinery|
|To Repair to Plant & Machinery|
|To Sundry (Factory) Expenses|
Points To remember
- In the absence of ledger balances like Inventories, quantity manufactured etc, we need to calculate the figures for Inventories, sales etc. from the available data.
- The Manufacturing Account format must show the quantities and values.
- Units sold = Opening inventory + units manufactured- closing inventory
- In the absence of specific information, we always assume “first in-first out” basis, for closing inventory valuation.
Must Read – Golden rules of accounting
Must Read – Types of accounts
Must Read – Cost sheet format
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