Manufacturing trading profit and loss account with balance sheet and working exercises Lesson Note
Learning objectives:
This SS2 ACCOUNTING lesson note covers Manufacturing trading profit and loss account with balance sheet and working exercises for First Term, Week 5.
Lesson Note
Learning objectives:
At the end of the lesson, students should be able to:
Describe a manufacturing account.
Identify the items in a manufacturing account.
Prepare manufacturing, trading, profit and loss accounts.
A. Meaning of Manufacturing Account
A manufacturing account is an account prepared by a manufacturing business to calculate the cost of producing goods during a particular period.
B. Items in a Manufacturing Account
Raw materials: Materials used to produce goods.
Direct labour: Wages paid to workers who produce goods.
Direct expenses: Other expenses directly related to production.
Factory overheads: Indirect production costs, such as factory rent and electricity.
Work-in-progress: Goods that are not yet completed.
C. Preparation of Manufacturing, Trading, Profit and Loss Accounts
Format for manufacturing, trading profit and loss account
#. #. #
Opening stock of rm. X. X. Cost of prod. X
Add: purchases of rm. X.
Add:carriag inward of rm X. X.
X
Less: closing stock of rm X.
Cost of rms consumed. X
Add: direct wages X
Royalties X
Direct expenses. X
Prime cost X
Factory over head:
Factory power. X
Factory rent and rate. X
Indirect wages. X
Factory insurance. X
Depreciation on p&m. X
Fuel and power. X
Lubricants X. X
X
Add: open stock of wip. X
Less: close stock of wip. X
Cost of production X. Sales. X
Opening stock of fg. X
Less: closing stock of fg. X
Gross profit. X
Expenses
Selling and distribution. Gross profit b/d. X
Carriage outwards. X. Discount received. X
Commission on sales. X
Salesmen salaries. X. X
Administration
Admin salaries. X
Office rent. X
Office insurance. X
Office lighting. X
Office machine depreciation. X. X
Net profit. X. X
Trading Account
It is prepared to calculate gross profit or gross loss.
Formula:
Gross Profit = Sales − Cost of Goods Sold
Profit and Loss Account
It is prepared to calculate net profit or net loss.
Formula:
Net Profit = Gross Profit + Other Income – Expenses
Illustration 1
Leonard Nigeria limited are manufacturers and the following balances were taken from the books of the company for the year ended on 31st December 1997.
#
Sundry debtors. 12, 650
Sundry creditors. 9, 820
Purchase of raw materials. 29, 470
Factory lighting and cooling. 2,885
Bank balance. 71,316
Stock on1/1/97:
Raw materials 5,360
Work in progress. 4,972
Finished goods 16,295
Factory insurance. 1,820
Rent. 21,600
Cash in hand. 3,751
Capital. 296,180
Office insurance 550
Sales of finished goods 141, 661
Drawings 2,500
Returns on raw materials 1,373
Bad debts 729
Stationery 1,586
Plant and machinery 225,066
Returns on finished goods 1,493
Provision for bad debts 308
Factory wages. 13,582
Stock on 31st dec1997:
Raw materials. 8, 619
Work in progress. 3, 664
Finished goods. 11,570
Furniture. 38, 420
Selling and admin expenses. 2,174
Office electricity. 1,569
Bank loan. 75,000
Office salaries. 9,629
Delivery vans. 56,925
The following additional information is given:
I interest is due on bank loan 5%
II one third of the rent is to be allocated to the factory.
III Provision for bad debts is to be 2% of the debtors
IV Depreciation is to be written off the plant and machinery at 21/2% and at 5% on delivery vans and furniture.
You are required to prepare:
The manufacturing trading, profit and loss account for the year ended 31st December 1997.
The balance sheet as at that date
Solution
Manufacturing, Trading, Profit and Loss account for the year ended
| Opening stock of rm. 5,360 Add purchases of rm. 29,470 Less:returns of rm. 1,373. 28,097 33,457 Less:closing stock of rm 8,619 Cost of rm consumed. 24,838 Factory wages. 13,582 Prime cost. 38,420 Add: factory overheads Factory lighting. 2,885 Factory insurance. 1,820 Factory rent. 7200 Dep. Of p&m. 5,627. 17,532 55,952 Add:opening stock of wip. 4,972 60,924 Less: closing wip. 3,664 Cost of production. 57,260 Less: closing stock of finished goods 11,570 61,985 Gross profit 78,183 140,168 Expenses Salaries and admin. 2,174 Office rent. 14,400 Bad debts 729 Stationery 1,586 Office electricity 1,569 Interest on loan. 3,750 Office salaries 9,629 Office insurance. 500 Depreciation: Delivery van 2,846 Furniture 1,921 Net profit 39,084 78,238 | Cost of production b/d. 57,260 57,260 Sales. 141661 Less Returns inwards. 1,493. 140,168 140,168 Gross profit b/d. 78,183 Reduction in provision for bad debt. 55 78,248 |
|---|
Evaluation Questions
What is a manufacturing account?
State three items found in a manufacturing account.
From the following details, you are required to prepare a manufacturing account for the year ended 31st December 1992
Stock at 1st January 1992: #
Raw materials. 5,000
Work In Progress. 3,000
Finished goods stock. 7,000
Purchases of raw materials. 50,000
Manufacturing wages. 15,000
Royalties. 300
Lubricants. 600
Carriage inward on raw materials. 1,000
Fuel and power. 170
Factory insurance. 250
Depreciation
Plant and machinery. 1,750
Delivery van. 250
Office equipment. 300
Advertising. 1,050
Salesman commission. 60
Sales. 150,000
Delivery van expenses 120
Stock at 31st December 1992:
Raw materials. 4,500
Work in progress. 2,030
Finished goods. 4600
Objective Questions
A manufacturing account is prepared to calculate the ____.
A. Cost of production
B. Total sales
C. Bank balance
D. Capital
Materials used in production are called ____.
A. Fixed assets
B. Raw materials
C. Liabilities
D. Debtors
Wages paid to production workers are called ____.
A. Direct labour
B. Sales
C. Capital
D. Drawings
Factory rent is an example of ____.
A. Factory overhead
B. Sales revenue
C. Capital
D. Drawings
The manufacturing account calculates the ____.
A. Cost of production
B. Net sales only
C. Total assets
D. Bank overdraft
The trading account is prepared to calculate ____.
A. Gross profit or loss
B. Capital
C. Drawings
D. Bank balance
Net profit is calculated in the ____.
A. Cash book
B. Profit and loss account
C. Purchases journal
D. Sales journal
Goods that are not yet completed are called ____.
A. Work-in-progress
B. Finished goods
C. Debtors
D. Creditors
Gross profit is calculated by subtracting the cost of goods sold from ____.
A. Sales
B. Capital
C. Purchases
D. Expenses
Which of the following is a factory overhead?
A. Factory electricity
B. Personal transport
C. Owner’s drawings
D. Household food