University:
Grand Rapids Community College
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

68

Pages:

3
Author:

stud_ice13

When preparing an income statement and balance sheet for a manufacturing company, understanding the distinct inventory and cost structures is crucial. Unlike merchandising or service companies, manufacturers need to account for three types of inventory (raw materials, work in process, and finished goods) and include the costs of goods manufactured rather than simply the cost of goods purchased. Here’s a step-by-step breakdown of how to prepare these financial statements: 1. Income Statement for a Manufacturing Company A manufacturer’s income statement includes revenue and cost of goods sold, calculated using the cost of goods manufactured. Here’s how this can be structured: Income Statement for a Manufacturer For the Year Ended December 31, 20XX Account Sales Revenue Amount ($) 500,000 Less: Cost of Goods Sold Beginning Finished Goods Inventory 40,000 Plus: Cost of Goods Manufactured 300,000 Goods Available for Sale 340,000 Less: Ending Finished Goods Inventory 30,000 310,000 Cost of Goods Sold Gross Profit 190,000 Operating Expenses Selling Expenses General & Administrative Expenses Total Operating Expenses 25,000 20,000 45,000 Net Income 145,000 Notes: • • Cost of Goods Manufactured is calculated by adding direct materials used, direct labor, and factory overhead. The structure of this statement includes gross profit calculation (Sales Revenue – Cost of Goods Sold) and deducts operating expenses to arrive at net income. 2. Balance Sheet for a Manufacturing Company A manufacturer’s balance sheet includes three types of inventory under current assets: raw materials, work in process, and finished goods. The balance sheet below reflects the unique structure of manufacturing companies. Balance Sheet for a Manufacturer As of December 31, 20XX Assets Current Assets Cash Accounts Receivable Raw Materials Inventory Work in Process Inventory Finished Goods Inventory Total Current Assets Amount ($) 20,000 60,000 10,000 15,000 30,000 135,000 Property, Plant, and Equipment Land 50,000 Buildings 150,000 Equipment 80,000 Less: Accumulated Depreciation (40,000) Total Property, Plant, and Equipment 240,000 Total Assets 375,000 Liabilities and Equity Current Liabilities Accounts Payable Wages Payable Total Current Liabilities 25,000 10,000 35,000 Long-term Liabilities Notes Payable Total Liabilities 100,000 135,000 Equity Common Stock Retained Earnings Total Equity 100,000 140,000 240,000 Assets Total Liabilities and Equity Amount ($) 375,000 Notes: • • Current Assets include the three inventory types: raw materials, work in process, and finished goods. This layout reflects how manufacturers report their inventory compared to merchandisers, who only report merchandise inventory, and service companies, who typically report no inventory. These statements provide an accurate snapshot of a manufacturer’s financial position by accounting for production-related costs, inventory classifications, and a detailed cost of goods sold calculation.