Manufacturing Account: How it differs from Trading Account

A manufacturing account is different from the trading account.

Manufacturing account is prepared to know the cost of production of goods. This statement is generally prepared and used in manufacturing concerns to know the cost of production of goods.

But a trading account is prepared in all business concerns, whether they are manufacturers or dealers in goods.

The trading account gives you the gross profit or loss of your business in selling your products. So it includes, for its cost, some elements of selling and stock maintaining charges also in it. So, the trading cost is broader than the manufacturing cost.

In manufacturing cost, you will consider only those expenses which are directly related to production and only up to the production point. So, it will not include the cost of maintaining your stocks in godowns or warehouses, the cartage incurred in selling your products and the wages of labour, etc. not directly related to production.

Manufacturing cost is taken to trading account to determine the gross profit or loss of your business concern. So, you may take the manufacturing cost directly in your trading account and add other expenses to calculate the gross profit instead of taking each item of cost separately in the trading account. For this, you will first calculate the manufacturing cost and then carry it to the Trading Account and add other items of trading activities one by one on the expenses side and deduct the total amount from the sales amount to arrive at the gross profit of your business.

A sample of Manufacturing Account and Trading Account are given below.

Manufacturing Account for cement production

Particulars	Amount in $
Limestone cost	100000
Gypsum	5000
Other ash, additives	15000
Crushing charges	10000
Direct labour	20000
Power	20000
Fuel	20000
Total manufacturing cost	190000

   

Trading Profit/Loss Account

Particulars	Amount ($)	Particulars	Amount ($)
Opening Stock	10000	Sales	280000
Manufacturing cost	190000	Closing Stock	20000
Wages & Salaries	20000
Rent and Electricity	10000
Cartage	10000
Depreciation	20000
Total Cost	260000
Trading Profit	40000
TOTAL	300000	TOTAL	300000

   

From the above illustration, you can see that manufacturing account is directly related to the calculation of the cost of goods produced up to the manufacturing stage only whereas, the trading account takes into account other costs also related to the trading or selling of goods including the depreciation involved on plant and vehicles and storage building.