Ministry of Education

Cyril Potter College of Education

TVET Department
Business Studies Option
PBS 261: Cost and Management Accounting
Week Two (2)
Topic: Manufacturing Account
Sub topic: Final Account
Trading profit and loss Account

Trading account section

This account includes:

• production cost brought down from the manufacturing account

• opening and closing inventory of finished goods

• sales.

When completed, this account will disclose the gross profit. This figure will then be carried down to the
profit and loss account section of the final accounts
(1) is production costs of goods unsold in the previous period.

(2) is production costs of goods unsold at the end of the period.

Profit and loss account section

This section includes:

• gross profit brought down from the trading account

• all administration expenses • all selling and distribution expenses

• all finance charges.

Some of the charges usually found in the profit and loss account will have already been included in the
manufacturing account, hence, only the remainder need charging to the profit and loss account. When
completed, the profit and loss account will show the net profit.
A worked example for a manufacturing account (continued from week 1)
The trading account is concerned with finished goods. If there had been $3,500 Inventory of finished
goods at 1 January 2017 and $4,400 at 31 December 2017, and the sales of finished goods amounted to
$25,000, then the trading account would appear thus:
Apportionment of expenses

Quite often, expenses will have to be split between:

An instance of this could be the rent expense. If the rent is paid separately for each part of the
organisation, then it is easy to charge the rent to each sort of expense. However, only one figure of rent
might be paid, without any indication as to how much is for the factory part, how much is for the selling
and distribution part and that for the administration buildings. How the rent expense will be
apportioned in the latter case will depend on circumstances, but will use the most equitable way of
doing it. A range of methods may be used, including ones based upon:

• floor area

• property valuations of each part of the buildings and land.

Complete exercises from chapter 37 of the Frank Woods 6th edition.

Worked Question showing the:

Manufacturing account

The income statement (Trading, profit and loss account)

Statement of Financial Position (The balance sheet)

The trial balance has been extracted from the books of R James, Toy Manufacturer, as at 31 December
2017.
Note: Students often find the preparation of manufacturing accounts difficult to grasp and may find it
useful to remember the following areas in which they could easily make a mistake:

1 Remember to add any item appearing under the heading of ‘Indirect manufacturing costs’, that is,
rent, wages, depreciation, power and lighting etc.
2 In the trading account ‘Cost of goods sold’ section ensure you use the ‘Production cost of goods
completed’, that is, $79,345 and not the purchases figure.

3 In the statement of financial position, under Current assets, be sure to include all three closing
inventories if applicable to your question, that is, (i) Inventory of raw materials (ii) Inventory of work in
progress (iii) Inventory of finished goods.