Financial Statements for Manufacturing

Concerns
Financial Statements are the final product of an
accounting entity/system. A typical set of financial
statements include;
1. Income statement.
2. Balance Sheet.
3. Statement of Cash Flows.
In manufacturing concerns the following are the
main final statements.
1.
2.
3.
MBA(UOS)

Cost of Goods Sold Statement( a part of Income

Statement)
Income Statement.
Balance Sheet
Lecture 5

Income Statement
Name of Concern
Income Statement
For the Period Ended on----

Description
Sales
Less cost of goods sold
Gross Profit

Rs.

Less Commercial Expenses.

Marketing Expenses
Administrative Expenses

000
000

Income from operations

Less provision for income tax
Net Income
MBA(UOS)

Rs.

Lecture 5

Rs.
000
000
000

000
000
000
000
2

Cost of Goods Sold Statement

Description

Name of Concern
Cost of Goods Sold Statement
For the period ended on
Rs.

1. Direct Material:
Opening Raw material Inventory.
Add: Purchase of Raw material.
Less: Purchase Discount.
Return & Allowances.
Gross Purchases
Add: Carriage In
Freight, cartage etc.
Net Purchases

MBA(UOS)

Lecture 5

Rs.

Rs.

000
000
000
000
000
000

000
000
000

000
000

Cost of Goods Sold Statement

Name of Concern
Cost of Goods Sold Statement
For the period ended on
Description

Rs.

Rs.

Cost of Material available for sale.

Less: ending Raw material inventory
Cost of Material Used

000
000
000

2. Add: Direct Labour Cost

3. Add: Applied F.O.H
Total Factory Cost.

000
000
000

MBA(UOS)

Lecture 5

Rs.

Cost of Goods Sold Statement

Name of Concern
Cost of Goods Sold Statement
For the period ended on

Description

Rs.

Add: Opening Work in Process inventory

Cost of Goods to be Manufactured.
Less: Ending Work in Process inventory.
Cost of Goods Manufactured

MBA(UOS)

Lecture 5

Rs.

Rs.

000
000
000
000

Cost of Goods Sold Statement

Name of Concern
Cost of Goods Sold Statement
For the period ended on
Description

Rs Rs.
.

5. Add: Opening Finished Goods inventory

Cost of goods available for sale.
Less: Ending Finished Goods Inventory
Cost of goods sold (at Normal)
Add/Less: (Under/Over applied) FOH
Cost of Goods Sold at Actual
MBA(UOS)

Lecture 5

Rs.

000
000
000
000
000
000
6

Cost of Goods Sold Statement

MBA(UOS)

Generally FOH can not be estimated exactly at the

time of manufacture of goods. It is calculated and
distributed to goods manufactured at the end of
year. In order to complete the cost of goods an
estimated amount of factory over head is charged to
the cost of goods manufactured and sold statement
and it is known a s applied FOH.
When Cost of goods sold is calculated by taking
applied FOH the cost of goods sold is called Cost of
Goods sold at normal.
If the applied FOH is more than actual FOH it is called
over applied FOH.
If the applied FOH is less than Actual FOH it is called
Under Applied FOH.

Lecture 5

Cost of Goods Sold Statement

Over applied FOH is deducted from cost of goods sold at
normal.
Under applied FOH is added in Cost of goods sold at
normal.
After the adjustment of Over or under applied F.O.H cost
of goods sold at actual is calculated.
When the amounts of Total payroll and Direct Payroll is
given the difference between Total and Direct payroll is
not always indirect labour only. It may be marketing and
Admin payroll as well.
Entire production consists of : Cost of Goods Sold,
Finished goods ending inventory, Work in process ending
inventory.

MBA(UOS)

Lecture 5

Cost of Goods Sold Statement

Ending stock is considered as a source of income, Greater the
ending stock in relation to purchases greater will be the gross
profit.
Increase in inventory is deducted from relevant cost.
Decrease in inventory is added in the cost.
Unit cost of material, labour and FOH can be ascertained as
follows:
Material
Labour
FOH
Consumed
000
000
000
Add opening WIP
000
000
000
Available for Use
000
000
000
Less Ending WIP
000
000
000
Net in Process
000
000
000
Cost per Unit= Net in process (Material or Labour or FOH)
# of Units manufactured
Unit Cost of Manufactured: Cost of Goods Manufactured
# of Units Manufactured
MBA(UOS)

Lecture 5

Balance Sheet
Name of Concern
Balance Sheet
As on
Assets & Properties
Cash
Marketable Securities
Accounts receivables
Inventories:
Finished Goods
Work in process
Materials
Property Plant & Equipment
Less Depreciation
Total Assets

MBA(UOS)

Rs.

Liabilities & Equities

Rs

Current Liabilities
Long term Liabilities
Common Stock
Retained Earnings

Total Liabilities & Equities

Lecture 5

10