Final Accounts for Sole Proprietors - Non-manufacturing

Manufacturing Account

The primary object of accounting is to arrange accounting data in a manner that the amount of profit or loss can be ascertained. It is prepared for a fixed period. For this purpose, we prepare the final accounts. Non-manufacturing entities or the trading entities are engaged in the purchase and sale of goods at profit without changing the form of the goods. Generally, Manufacturing entities prepare a separate Manufacturing Account as a part of Final accounts in addition to Trading Account, Profit and Loss Account and Balance Sheet.

Manufacturing account

The main purpose of preparing Manufacturing Account is to determine manufacturing costs of finished goods. It helps in improving the cost-effectiveness of manufacturing activities. The costs of finished goods are then transferred from this Account to Trading Account.

How is it different from trading Account?

The trading account shows Gross Profit while Manufacturing Account shows the cost of goods sold which includes direct expenses.

Manufacturing account deals with the raw material and work-in-progress while the trading account would deal with finished goods only.

Learn more about Trading Account here in detail.

How to prepare manufacturing Accounts?

There is no standardized format for the presentation of a Manufacturing Account. Following is the format for covering various elements:

Manufacturing Account

Particulars Units Amount Particulars Units Amount
To Raw material consumed: By By-products at net realizable value
Opening inventory By Closing Work-in-Process


Add: Purchases By Trading A/c
Less: Closing inventory Cost of production
To Direct Wages
To Direct expenses
Prime cost
To Factory overheads:
Hire charges
To Indirect expenses:
Repairs & Maintenance
Factory cost
To Opening Work-in-process

Note:  If we do not have the ledger balances like Inventories, quantity manufactured, etc. then figures for Inventories, sales, etc., we would have to calculate them independently from the data that is available to us.


Manufacturing account

Keep the following general rules in mind

(1)The Manufacturing Account should show the quantities and values. If they are not given they should be calculated. For example, if the question does not state the total number of items sold,  we calculate the quantity as follows:

(Opening inventory + units manufactured- closing inventory)

(2) We show the number of raw materials in inventory at the beginning and at the end of the year and the purchases during the year in manufacturing account. Finished goods will only show the quantity manufactured and, as regards work-in-progress, the opening and closing amounts.

(3)Trading Account will show the quantities of finished goods manufactured and sold and the opening and closing balances of inventory. It will not show the number of raw materials or work-in-progress.

(4)In absence of specific information always assumed “first in-first out” basis, for closing inventory valuation.

Solved Example For You

Mr. Prasoon runs a factory which produces soaps. Following details were available in respect of his manufacturing activities for the year ended on 31.03.2017

Opening work-in-process (5,000 units) 8,000
Closing work-in-process (6,000 units) 10,000
Opening inventory of Raw materials 85,000
Closing inventory of Raw materials 95,000
Purchase 4,10,000
Hire charges of machine@₹0.60 per unit manufactured
Hire charges of factory 1,10,000
Direct wages-contracted@₹0.80 per unit manufactured and @₹0.40 per unit of closing W.I.P
Repairs and maintenance 90,000
units produced-2,50,000

Prepare a manufacturing Account of Mr. Prasoon for the year ended 31.03.2017.


In the Books of Mr.Prasoon

Manufacturing Account for the year ended 30.06.2017

Particulars Units Amount Particulars Units Amount
To Raw material consumed: By By-products at net realizable value
Opening inventory 85000 By Closing Work-in-Process


6000 10000
Add: Purchases 410000 By Trading A/c 250000 950400
Less: Closing inventory (95000) Cost of production
To Direct Wages 202400
To Direct expenses
(hire charges on machinery) 150000
Prime cost 752400
To Factory overheads:
Hire charges of factory shed 110000
To Indirect expenses:
Repairs & Maintenance 90000
Factory cost 952400
To Opening Work-in-process 5000 8000
960400 960400

Working Notes

Direct Wages= 250000 units@₹0.80 ₹200000
6,000 units@₹ 0.40 ₹2,400
Total                                                                                                                           = ₹202,400

Hire charges on machinery:-$$250000 \ \text{unit at} \ ₹0.60 = ₹150000$$

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