Manufacturing Account

Many business entities engage in manufacturing activities and this involves the purchasing of raw materials and incurring labor and other cost in converting the raw materials into finished goods. For this purpose a manufacturing account is prepared in order to ascertain the cost of producing the goods. This account is also normally prepared at the end of the accounting period. Both direct and indirect expenses associated with the manufacturing process debited to the manufacturing account. The balance of this account representing cost of the goods produced is then transferred to the trading account. The order of presentation of the final accounts is as under:

(a)    Manufacturing Account

(b)    Trading Account

(c)    Profit and Loss Account

(d)    Profit and Loss Appropriation Account (if a partnership or a limited company)

(e)    Balance Sheet.


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