Manufacturing Account: Meaning/Definition - SS2 Accounting Lesson Note

A manufacturing account is a financial statement that shows the cost of producing goods by a manufacturing company. It is an important component of the company's overall financial statements and is used to track the costs associated with the production process.

The manufacturing account typically includes information about the cost of raw materials used in production, labour costs, manufacturing overhead costs, and any other expenses directly related to the manufacturing process. These costs are then used to calculate the total cost of goods produced during the accounting period. Below is a format of the manufacturing account:

Add: Purchases

Add: Carriage Inwards

Less: Closing Stock

Add: Direct Wages

Add: Royalty

Prime Cost

Factory Overhead Expenses:

XXX

Add: Work in Progress 

Less: Closing Work in Progress

Cost Of Production

Cost Of Production b/d

(₦)

X

X

XX

X

XX

XX

(₦)

XX

X

XX

XX

XX

X

XX

X

X

XX 

XX

 

The manufacturing account is important in a manufacturing company because it provides a detailed breakdown of the costs associated with the production process, which can be used by management to make informed decisions about pricing, inventory levels, and other aspects of the business. It is also used for tax and regulatory purposes, such as calculating the cost of goods sold and determining the taxable income of the company.