Some concerns like to ascertain the cost of goods manufactured by them during the year distinctly before they prepare the trading and ascertain the gross profit. This account is called the manufacturing account and is prepared in addition to the trading account. It has the under mentioned characteristics:
Since the purpose of preparation of this account is to ascertain the cost of goods produced during the year, the opening and closing stocks of finished goods are not entered in it.
In respect of materials it is the figure of materials consumed which is debited to the account. This figure is obtained by adjusting the purchase of materials for the opening and closing stock of materials.
In the manufacturing concern there will always be some unfinished goods or work-in-progress. The cost of work-in-progress at the end of the year is credited to this account, shown in the balance sheet and debited to the manufacturing account of next year as on opening balance.
Amounts raised by sale of waste or scrap materials are deducted from raw material purchases.