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Preparation of Final Accounts of Sole Proprietor

Manufacturing account

The main aim of accounting is to arrange accounting data in order to ascertain the amount of profit or loss of an entity. For this purpose, we prepare the financial statements. The primary purpose of preparing Manufacturing Account format is to ascertain the manufacturing costs of finished goods.

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Non-manufacturing entities or the trading entities are involved in the purchase and sale of goods at a profit. Usually, Manufacturing entities prepare a Manufacturing Account also in addition to Trading Account, Profit and Loss Account and Balance Sheet.

Manufacturing Account Format

The manufacturing account helps to better the cost-effectiveness of manufacturing activities. After the ascertainment of the costs of finished goods, we need to transfer this cost to Trading Account.

The trading account shows Gross Profit.  Whereas, the Manufacturing Account depicts the cost of goods sold and also includes direct expenses. Manufacturing account addresses the raw material and work in progress and does not deal with the finished goods.

We debit all the direct production expenses such as depreciation on plant and machinery and factory building, repairs on plant and machinery and factory building, salary to the factory manager, wages, cartage on raw-materials, etc.

Thus, the cost of finished goods includes the cost of raw materials and all direct expenses. All indirect expenses form a part of the Profit and Loss A/c.


manufacturing account format

(source – CTE resource centre)

However, there is no standardized format of a Manufacturing Account. The following format covers various elements:

Manufacturing Account

For the year ended…

Particulars Units Amount Particulars Units Amount
To Opening Work-in-progress By Closing Work-in-Progress
To Raw material consumed: By Sale of scrap
Opening inventory By Trading A/c
Add: Purchases (transfer of Cost of production)
Less: Closing inventory
To Direct Wages
To Direct expenses
To Factory expenses:
Factory rent
Repairs & Maintenance of plant and machinery
Depreciation on plant and machinery
Depreciation on factory building
Indirect wages

Points to remember:

  1. 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.
  2. The Manufacturing Account format must show the quantities and values.
  3. Units sold = Opening inventory + units manufactured- closing inventory
  4. In the absence of specific information, we always assume “first in-first out” basis, for closing inventory valuation.

Solved Example For You:

Mr. Prasad runs a factory which produces caps. Following are the details available in respect of his manufacturing activities for the year ended on 31.03.2018

Opening work-in-progress (4,000 units) 8,000
Closing work-in-progress (5,000 units) 10,000
Opening stock of Raw materials 75,000
Closing stock of Raw materials 85,000
Purchase of raw material 4,20,000
Hire charges of [email protected]₹0.50 per unit manufactured
Rent of factory 1,50,000
Direct wages- @₹0.70 per unit manufactured and @₹0.30 per unit of closing W.I.P
Repairs and maintenance 100,000
units produced-2,60,000

Prepare a manufacturing Account of Mr. Prasad for the year ended 31.03.2018.


In the Books of Mr. Prasad

Manufacturing Account for the year ended 30.03.2018

Particulars Units Amount Particulars Units Amount
To Opening Work-in-progress 4000 8000 By Closing Work-in-Progress 5000 10000
To Raw material consumed: By Trading A/c 971500
Opening inventory 75000 (transfer of Cost of production)
Add: Purchases 420000
Less: Closing inventory (85000)
To Direct Wages 183500
To Direct expenses (hire charges of machinery) 130000
Prime Cost 723500
To Factory expenses:
Factory rent 150000
Repairs & Maintenance of plant and machinery 100000
981500 981500


Working Notes:

Direct Wages= 260000 [email protected]₹0.70=.                                                                    ₹182000

5,000 [email protected]₹ 0.30=.                                                                                                ₹     1500

Total         ₹183500

Hire charges on machinery:-260000 unit @ ₹0.50                                              ₹130000



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