The income statement for merchandising and manufacturing companies differs in the reporting of the cost of the merchandise (goods) available for sale and sold during the period.
This lecture will clarify how to prepare the income statement for a manufacturing company.
A manufacturing company has no need to prepare a manufacturing account, statement of production, or a cost sheet, before preparing the income statement.
The income statement remains the same except for the transfer of goods manufactured to a trading account to be treated as finished goods (at par with purchases).
Thus, the company that carries on manufacturing activity besides trading activity tends to prepare:
Preparing a manufacturing account shows the cost of materials consumed, productive wages, direct and indirect expenses of production, and the cost of finished goods produced.
Manufacturing account is debited with:
The total cost of production is credited to the manufacturing account by giving a debit to the trading account.
The income statement for merchandising and manufacturing companies differs in the reporting of the cost of the merchandise (goods) available for sale and sold during the period.
A manufacturing company has no need to prepare a manufacturing account, statement of production, or a cost sheet, before preparing the income statement.
A manufacturing company differs from a merchandising company in the reporting of the cost of the merchandise (goods) available for sale and sold during the period. A manufacturing company has no need to prepare a manufacturing account, statement of production, or a cost sheet, before preparing the income statement. The income statement remains the same except for the transfer of goods manufactured to a trading account to be treated as finished goods (at par with purchases).
A manufacturing company reports depreciation as a separate item in the income statement after the cost of goods sold. The amount of depreciation is deducted from the gross profit to arrive at the net profit before tax.
A manufacturing company reports taxes as a separate item in the income statement after the net profit. The amount of taxes is deducted from the net profit to arrive at the bottom line, i.E., The net profit after tax.
About the Author
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
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