Manufacturing Accounts


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In today’s class, we will be talking about manufacturing accounts. Enjoy the class!

Manufacturing Accounts

Manufacturing Accounts |


Manufacturing can simply be described as the transformation of raw materials into finished goods e.g. manufacturing companies like Nestle, Cadbury, PZ These manufacturing firms do manufacture their goods or product before they are sold to their customer. They do not buy to sell but produce what they sell.

The manufacturing companies prepare final accounts called Manufacturing Account.


Manufacturing Account is prepared to ascertain the cost of goods manufactured during the financial year. Therefore manufacturing accounts have the following purposes.

  1. To ascertain the cost of production
  2. To determine the profit of the manufacturing process.
  1. Cost of production: This is the total expenditure incurred in the production of goods. Production costs include PRIME COST + FACTORY OVERHEADS
  2. Prime cost: These are cost directly related to the production process. It is also called Direct Cost which includes: Direct materials, direct labour, direct expenses and any other direct expenditure.
  3. Direct materials cost: These are the cost of raw materials
  4. Direct labour cost: These are the cost of labour wages paid
  5. Direct expenses: These are the cost of other expenditure incurred in the production process.
  6. Factory overheads: These are cost incurred in the running of the factory but not directly related to the production process. It is also called INDIRECT COST. They include; factory rent and rates, depreciation of plant and machinery. Indirect wages, upkeep of factory building.
Format of Manufacturing Trading Profit and Loss Account

N       N                                                                       N

Opening stock of raw material                    x               Cost of production                   x

Add purchases of raw material                   x

Carriage inward of raw material    x          x


Loss closing stock or raw material net        (x)

Cost of raw material consumed                 x

Add direct wages                                            x

Royalties                                                 x

Direct expenses                                                x

Prime cost                                                          x

Factory overheads:                                         x

Factory power                                      x

Factory rent & rates                                         x

Indirect wages                                      x

Factory insurance                                            x

Depreciation of P & M                                    x

Fuel and power                                                x

Lubricants                                               x          x


Add opening stock W.I.P                               X


Less closing stock W.IP                                    X

Cost of production                                          x                                                                      x

Manufacturing Trading, Profit and loss Account contd

N         N                                                         N         N

Opening stock of finished goods                x          sales                                                   x

Add the cost of production                                 x

Cost of good available for sale                   x

Less closing stock of finished goods           (x)

Cost of goods sold                                          x

Gross profit c/d                                     X   

X                                                                      x

Expenses                                                                         Gross profit b/d                              x

Selling & distribution                                                    Discount received                         x

Carriage outward                               x                                                                                  x

Commission sales                                 x

Salesmen salaries                                 x          x

Administration exp

Admin salaries                                       x

Office rent                                              x

Office insurance                                   x

Office lighting                                       x

Depreciation of

Office machinery                                 x          x



Net profit c/d                                                    x

X                                                                      x



In the trading account, the cost of production is charged to determine profit on sales. The changing of cost of production of goods may be done in two ways.

  1. Actual factory cost
  2. Current market values

When goods manufactured are charged at the current market value to the trading account,  the main objective is to obtain a profit on the manufacturing process. The manufacturing accounts will then have to show a balance which represents a profit or loss on production and this is transferred to profit and loss account.


The following information was extracted from the books of Tasty Enterprises for the year ended 31st December 1991


Manufactured goods                                                   9,740

Raw materials                                                                  3,000

Discount allowed                                                            3,740

Depreciation on plant and machinery                    13,000

Printing and stationery                                                     930

Purchases: Manufactured goods                              12,740

Carriage inwards                                           500

Debtors                                                                            21,740

Cash at bank                                                                   1,710

Purchases of raw material                                           87,260

Office rent and rates                                                      6,500

Repairs to machinery                                                    2,500

Plant and machinery                                                     75,200

Factory electricity                                                           5,790

Carriage inwards (raw materials)                              3,410

Office salaries                                                                   9,400

Carriage outwards                                                         2,330

Factory rent and rates                                                 22,710

Cash in hand                                                                      570

Manufacturing wages                                              110,290

Sales                                                                                299,420

Capital                                                                             77,820

Creditors                                                                          21,790


(a) Stock on 31st Dec 1991

Manufactured goods      N27,940

Raw material                       N 2,000

(b) Goods manufactured to be posted to the sales department at the net realizable value of N271,500

You are required to prepare manufacturing trading profit and loss account for the year ended 31st Dec. 1991.



Manufacturing Trading Profit and Loss Account for the year ended 31st December 1991.


Dr                                          N                 N                                              N       N

Opening stock of r.m                                         3,000        Transfer cost       271,500

Add. Purchases of r.m               87,260

Carriage of the raw mat.                   3,410            90,670


Less closing stock of r.m                        2,000


Manufacturing wages                                      110,290

Prime cost                                                             201,960

Factory overheads

Depreciation p&m                     13,000

Repair to machinery                    2,500

Electricity                                         5,790

Factory rent and rates               22,710            44,000

Production cost                                                   245,960

Gross profit on production                               25,540

271,500                           271,500

Opening stock of finished goods            9,740              Sales               299,470

Add: Transfer cost 271,500

Purchases of finished goods                                12,740

Carriage inwards                        500              284,740

Cost of goods available                                   294,480

for sales



Manufacturing Trading Profit and Loss Account for the year ended 31st December 1991.


N         N                                                         N                     N

Cost of goods available                       294,480     Sales b/f            299,420

for sale b/f

Less closing stock                        27,940

Cost of goods sold                                 266,540

Gross profit c/d                                          32,880

299,420                                              299,420


Expenses                                                                    Gross profit b/d              32,880

Discount allowed                                    3,740  Profit on manufacture      25,540

Office rent & rates                                     6,500

Office salaries                                             9,400

Carriage outward                                  2,330

Printing & stationary                                930

Net profit                                                   35,520

58,420                                                58,420

  1. Explain three differences between a trial balance and a balance sheet
  2. State four reasons for disagreement between a bank statement balance and cash book balance
  3. List five methods of providing for depreciation
  4. State five reasons for making provision for depreciation
  5. List six factors to be considered in computing the depreciation on fixed assets


In our next class, we will be talking about Capital and Revenue Expenditure.  We hope you enjoyed the class.

Should you have any further question, feel free to ask in the comment section below and trust us to respond as soon as possible.

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