MANUFACTURING
A manufaturing's accounting system will be similar to other types of business.
It includes Income statement, Balance sheet, Appropriation account.
The main different is that it is necessary to work out just how much was spent on producing goods rather than on purchasing them.
The costs are divided in different types
Some products that are not completed st the moment when the end-of-financial statements are prepared is called "Work-in-progress"
DIRECT COSTS are manufacturing costs that can be associated with an individual product. eg. Raw materials, wages paid to employees who make the products. They are added together and known as "PRIME COST"
INDIRECT COSTS are other costs that can be linked to the manufacturing process. eg. Rent, Utilities. Indirect costs are independent of the quantity of goods being produce, but still have to pay. They are added together and known as "Factory Overheads"
MANUFATURING ACCOUNT is used to find the total cost of producing goods.
The prime cost items and the production cost items are shown in the Manufacturing account. Whereas, The administation expenses, selling and distribution expenses and financial charges are shown in the Income statement.
Manufacturing account
Example
Trading account
Balance sheet -
same as the other types of business. However, in the inventories section it will shown 3 figures ; 1. raw materials 2. work in progress 3. finished goods
The difference between Direct labour and Indirect labour.
- Direct labour is workers that work in the factory in making the product
- Indirect labour is workers that work in the office