Accounting for 
Manufacturing Businesses


Previous lesson: Perpetual and Periodic Inventory
Next lesson: The Manufacturing Cost Statement





Glass Welder

Manufacturing means to make a product, whether by hand or by machine or both.

The word manufacture originates from Latin manu facere meaning "make by hand" (manus = "hand" and facere = "to make").

Unlike trading businesses, manufacturing businesses do not buy products at a low price and sell at a higher price.

Instead manufacturing businesses make products, which they then sell.

In this tutorial I'm going to show you one of the primary differences when accounting for manufacturing businesses (instead of service or trading businesses). This difference can be seen in the income statement.

First, let's recap. Here is the income statement for a trading business (including the calculation of the cost of goods sold): 

Income Statement (Trading Business)

We can see that the cost of the goods sold was determined as follows:

Cost of Sales Formula

The formula above was based on the calculation of the value of closing inventories: 

Closing Inventory Formula

The income statement for a manufacturing business is a bit different to that of a trading business:

Income Statement (Manufacturing Business)

Where do we get those new lines above about finished goods, and what exactly does this mean?

Shoes (Inventory)

Here is the definition of this key term for manufacturing businesses:

Finished goods: Inventories that have been fully manufactured and are ready for sale.


The cost of goods sold calculation in the above income statement was derived from a formula...

In a manufacturing business the closing value of finished goods are calculated as follows:

Formula for Closing Finished Goods

The cost of finished goods that were sold (cost of sales) is thus calculated by saying:

Cost of Finished Goods Sold Formula

And that is how we got what we did in the income statement above for manufacturing businesses.

Alrighty. So accounting for manufacturing businesses is not too bad so far, right? If you're happy with this lesson move on to the second lesson on the subject, which goes over the manufacturing cost statement.



Return from Accounting for Manufacturing Businesses to Inventory 

Return from Accounting for Manufacturing Businesses to Home Page 





Previous lesson: Perpetual and Periodic Inventory
Next lesson: The Manufacturing Cost Statement



Enjoying this Website?
Help Support it with a Donation

OR...



Questions Relating to This Lesson

Click below to see questions and exercises on this same topic from other visitors to this page... (if there is no published solution to the question/exercise, then try and solve it yourself)

Adjusting Entry Preparation Manufacturing Business
#1) How to prepare a journal entry for the transactions related to inventories of raw material, goods in process, & finished goods? #2) How to prepare …


Comments

Have your say about what you just read! Leave me a comment in the box below.

Advertise on ventoup.ru

Search this website:



Get Your Degree!

Find schools and get information on the program that’s right for you.

Powered by


All the lessons on this site and much, much more...

Available Now On







Related pages


vat formula calculatorwhat is the fundamental accounting equationgeneral ledger explainedexpanses definitionabbreviation for accountingdebtors ledger exampleprepaid journal entrybad debt expense on balance sheetworksheet of accountingdiscount allowed journal entryreceivables ledgerterm loan double entryrams transactionsbeginning inventory definitionposting to ledger accountshow to read a balance sheet for dummiescomparative income statement templatedifference between debtors and creditorsdebits & creditsovercast in accountingmeaning of account payable and receivablehow to remove vat calculationincome minus expenses equalsbookkeeping cyclemerchandise inventory is classified on the balance sheet as aa furniture dealer purchased a deskdefine double entry accounting systemexamples of owners equitywhat is double entry bookkeeping systemspecimen of trial balancefifo disadvantagesincome expenditure statement excel formatentry for salary payablewhat is accounting equation definitiondirect materials cost formulawhat is meant by accrual basis of accountingpreparing statement of cash flows indirect methodcost of goods manufactured calculatorsales ledger samplepreparing a worksheet accountingweekly income statement templatehow to maintain a ledger booksample trial balance worksheetcash flow statement calculatorfifo stock salesreceivables control accountformula for mark upexample of projected income statementexplain fifoaccounting equation examplesbooks on accounting for beginnersaccrual accounting basicswhat does cash outflow meancheapest college textbooks websitedefinition of retained earningaccum depreciationaccounting cycle quizdefine accounting and bookkeepingdoes unearned revenue go on the income statementgeneral ledger accounts examplecash book entries examplesadvantages and disadvantages of fifostockholders equity calculationreceivables meaning in accountingfinancial accounting formulasunderstanding accounting debits and creditspercentage markup formulajournal entries and t accountswhat is the purpose of the retained earnings statementmarkup on cost calculatoraccounting accrued expensesmeaning of debtors and creditorswhich journal would adjusting entries be foundmeaning of fifo methodfifo perpetual inventory methodbeginning stockholders equity formulabest intermediate accounting textbookformula for vat calculation