Income Statement & Statement of Financial Position

The income statement of a manufacturing business is prepared in a similar way to the other types of retail businesses

The income statement will be prepared after the manufacturing account

For the trading section:

• Use the inventory for finished goods

• Use the cost of production in place of purchases

  • The business might have also purchased extra finished goods

  • Add this to the cost of production

For the profit and loss section:

• Only include expenses that relate to the non-production aspects of the business

  • Such as advertising, carriage outwards, etc

• The expenses related to manufacturing are included in the cost of production

• A business might use a factory and an office

  • The factory expenses are included in the cost of production

  • The office expenses are included in the profit and loss section

The statement of financial position of a manufacturing business is prepared in a similar way to the other types of retail businesses

The only difference is how the inventory is displayed in the current assets section

All three inventories are shown separately and the total is calculated