In the examples we have looked at so far, most businesses have been trading businesses. That is to say, they have purchased goods and resold them. We now look at what happens where instead of purchasing goods the business manufactures the goods itself. Simply stated, all of the costs incurred in connection with the cost of manufacturing are collected in the manufacturing account, which we prepare to ascertain the cost of finished production. Having ascertained the cost of finished production, we transfer this amount to the trading account, where it replaces the item ‘purchases’ which appears in the trading account of trading businesses.
Unable to display preview. Download preview PDF.