Accounting for Manufacturing Businesses

There are a number of accounting issues that are involved in a manufacturing businesses that are absolutely absent from the accounting procedures of the other companies. The accounting procedures involved in a manufacturing business can be explained as under:-

Inventory Valuation

Inventory valuation means to record and restore the inventory of a manufacturing business. A manufacturing business involves the use of a number of raw materials, work in process that means goods that are being manufactured and finished goods. The balance sheet of the business must have a complete and accurate record of the entire inventory. The valuation of the inventory involves following steps:-

  • Direct Cost Assignment

o   In an inventory costs are assigned either by using standard costing method, weighted average cost and the cost underlying strategy.

  • Impairment Testing

o   This means to find out that whether the inventory items are recorded at the cost more than their market value

  • Overhead Cost assignment

o   Overhead cost must be added to the total pools of the costs. That will result in an increase in the overall costs of the inventory.

  • Recognition of the costs of goods sold

For the beginning of the accounting system of the business the costs of the goods sold is beginning inventory plus the purchases of the business and minus the ending inventory.

In addition to that the business must use either the perpetual inventory or periodic inventory to record the number of units that a business has its hand right now. With the help of this information a business can find out the valuation of the inventory.

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