Profit And Loss Statement For Manufacturing Company

Profit And Loss Statement For Manufacturing Company – (suggest), do not sell goods so do not have inventory. The accounting process and profit and loss statements for service companies are relatively simple. For commodity businesses (also called retail businesses), e.g.

Buying and selling goods, but usually not producing goods. Because trading companies are responsible for buying and selling goods, their accounting systems are more complex than those of service companies. Manufacturing companies for example

Profit And Loss Statement For Manufacturing Company

, produce and sell goods. Such a business requires an accounting system that goes beyond simply recording purchases and sales of goods.

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Answer: Manufacturing companies have a more complex accounting system because they require a system that tracks production costs throughout the production process until the goods are sold. Because manufacturing companies’ income statements tend to be more complex than those of service or trading companies, we devote this section to manufacturing companies’ income statements. Understanding the income statement in a manufacturing environment begins with the inventory cost flow equation.

Answer. We can use the basic cost flow equation to calculate unknown balances for almost any balance sheet account (such as cash, accounts receivable, and inventory). The comparison is as follows:

We will apply this equation to the three inventory asset accounts discussed previously (raw materials, goods in process, and finished goods) to calculate the cost of raw materials used in production, cost of goods manufactured, and cost of goods sold.

Represents the cost of goods sold and is transferred from finished goods inventory to cost of goods sold.

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Accountants need all of these amounts—raw materials put into production, cost of goods manufactured, and cost of goods sold—to prepare an income statement for a manufacturing company. We explain how to calculate this quantity using three formal graphs in the following order:

Question: The basic cost flow equation can be used in three supporting charts to help us determine the cost of goods sold on a manufacturing company’s income statement.

Answer: 1.7. The image “Custom Furniture Company Profit and Loss Statement Schedule” shows all three custom furniture company schedules for the month of May. As you review these graphs, notice that each graph provides information necessary for the next graph, as indicated by the arrows. Remember that the inventory cost flow equation is used for each schedule. Therefore, each element of the equation has a clear abbreviation: initial balance

The process is shown in 1.7. in the image “Custom Furniture Company Profit and Loss Report Schedule”, the aim is to obtain the cost of goods sold which is presented in the income statement. The income statement of a furniture manufacturing company for the month ending May 31 is shown in Figure 1.8. “Custom Furniture Company Profit Report” in Figure. Review 1.7. figure “Customized Furniture Company Income Statement Schedule” and 1.8. See Figure 1.6 for “Custom Furniture Company Profit and Loss Statement”. Figure “Product Cost Flow Through Balance Sheet and Income Statement Accounts” to see how costs flow. three inventory accounts and a cost of goods sold account.

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In Chapter 2, “How is Job Costing Used to Track Manufacturing Costs?”, we provide the detailed information necessary to prepare the schedule and income statement shown in Figure 1.7. in the figure “Schedule of income declaration of a furniture manufacturing company” and 1.8. in the figure “Calculation of revenue for orders” and 1.8. picture. Furniture Company”. At this point, your task is to understand how we use the inventory cost flow equation to calculate raw materials transferred to production, cost of goods manufactured, and cost of goods sold. (Note: Companies that use a perpetual inventory system do not need to prepare a schedule This is because perpetual systems update records immediately when inventory is transferred from one inventory account to another. However, these companies perform periodic physical counts to ensure the accuracy of inventory records and use cost flow equations and similar schedules to ensure that perpetual system balances they are accurate Note 1.62 “Business in Activity 1.8” shows how the cost flow equation can be used to analyze the impact of Rite Aid’s possible fraud.)

From the company’s balance sheet on April 30 (the final balance sheet on April 30 is the same as the initial balance sheet on May 1).

This is the actual production overhead for the period and includes indirect materials, indirect labor, factory rent, factory utilities, and other monthly factory-related expenses. In Chapter 2, “How is Job Costing Used to Track Manufacturing Costs?” Alternative approaches to recording production overhead costs are discussed

The $135,000 comes from cost of goods sold schedule 1.7. “Custom Furniture Company Profit and Loss Report Schedule” in the image.

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Rite Aid Corporation operates 3,400 pharmacies in the United States. In 2002, the Securities and Exchange Commission (SEC) charged several former Rite Aid executives with accounting fraud. The SEC complaint alleges that Rite Aid has significantly overstated earnings for several years.

According to the complaint, Rite Aid executives committed financial fraud in several areas, one of which involved inventory. At the end of the company’s fiscal year, a physical inventory count showed $9,000,000 less than Rite Aid’s inventory balance on the books, possibly due to physical damage or theft of merchandise. Rite Aid managers may not have recorded this decrease, thereby overstating inventory on the balance sheet and overestimating cost of goods sold on the income statement.

Using the cost flow equation, you can see how not recording a loss of $9,000,000 would reduce the cost of goods sold.

Excluding inventory losses, Rite Aid overstated inventory (assets) by $9,000,000 and underestimated cost of goods sold (expenses) by $9,000,000 on its balance sheet. This resulted in an increase in profit of $9,000,000 because the reported costs were understated.

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This inventory fraud is a small part of the fraud allegedly committed by Rite Aid executives. In fact, Rite Aid’s net income was reduced by $1,600,000,000 in 2002. Several former executives pleaded guilty to conspiracy charges. Former CEO Martin Grass was sentenced to eight years in prison, and former CFO Franklin Bergonzi was sentenced to 28 months in prison. Rite Aid stock fell from $50 per share to $5 per share in 2003.

Question: Manufacturing companies clearly have more sophisticated accounting systems to account for all costs associated with producing their products. However, a manufacturing company’s income statement is no different from a trading company’s income statement.

1.5. The table “Profit Calculation Terminology in Production Companies and Trading Companies” summarizes the differences in terminology for production companies and trading companies in calculating profit and loss.

1.9. image “Business Profit and Loss Statement for Fashion, Inc.” presents an income statement for Fashion, Inc., a retail business that sells clothing. Note that the cost of goods manufactured schedule (and the associated schedule of raw materials transferred to production) is not required for trading companies, and the rules

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. The cost of goods sold schedule is only included in the income statement. Many companies prefer this approach because it means they don’t have to create separate schedules.

Good Cabinets, Inc. producing cabinets to order. The following inventory balances appear on its balance sheet. (Note that the most recent financial information is displayed in the first column.)

Fine Cabinets had sales of $1,265,000 for the year ended December 31, 2012. The company also had the following expenses for the year:

Of the total raw materials put into production in the year, $12,000 is for indirect materials and must be subtracted to find the direct materials put into production.

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