How To Prepare the Financial Statements For A Manufacturing Company

Append below are:

(a) The following financial statements for a manufacturing company:

• Statement of Cost Of Goods Manufactured
• Income Statement
• Balance Sheet

(b) Salient points to note in a manufacturing company:

There are three (3) types of inventories namely:

• Raw materials, work in progress and finished goods
• Remember that:

Cost of Goods Manufactured = Beginning Work in progress Plus Total current manufacturing cost( direct labor + factory overheads) Minus Ending work in progress

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FORMAT of Statement of Cost Of Goods Manufactured for year ended 31 st December 2008

	$		$
Opening work in progress			XXX
Direct material
Opening inventories	XXX
+ Purchases	XXX
Raw material available for use	XXX
-Closing inventories	(XX)
Raw material consumed/used		XXX
Direct labor		XXX
Factory overhead:
Indirect material	XX
Indirect labor	XX
Others	XX
Total factory overhead		XXX
			XXX
Less: Closing work in progress			(XXX)
Total current manufacturing cost			XXX

FORMAT of Income Statement for the year ended 31st Dec 2008

		$	$
Sales Revenue			XXXX
Less: Cost of Goods Sold
Beginning Finished Goods Inventory		XXX
Cost of Goods Manufactured		XXX
Cost of Goods Available for Sale		XXX
-Ending Finished Goods Inventory		(XXX)
Cost of Goods Sold			(XXX)
Gross Profit			XXXX
Less: Operating Expenses			XXXX
Selling Expenses			XXX
Administrative Expenses			XXX
Net Income/(loss)			XXX

Format of Balance Sheet As At 31 st December 2008 ( extracted only Current Asset portion )

		$	$
Current Assets
Cash			XXX
Accounts Receivable			XXX
Inventories:
Raw Materials		XX
Work in progress		XX
Finished goods		XX	XXX
Sundry deposits and prepayment			XXX
Total Current Assets			XXX

How to construct or prepare a break-even chart.

In break-even chart, the unit of production are measured on the horizontal axis and costs and revenues on the vertical axis. Fixed costs are shown as a constant in a line parallel to the horizontal axis.

The following steps are used to construct a break-even chart:-

• Prepare a graph with the horizontal axis representing activity and vertical axis representing costs and revenues
• Draw the fixed cost line at the appropriate point on the chart
• Draw the total cost line starting from the point where the fixed cost line cut the vertical axis.
• Draw the sales revenue line starting at zero and finishing at point of maximum sales.
• Write on the completed break-even chart suitable description e.g. break-even point, profit,etc
  
  

How to or Steps To Establish A Flexible Budget

Earlier article describe the steps to prepare a budget and this article looks at how to establish a FLEXIBLE BUDGET.

Select the measure of activity like the units of production;

Define the relevant rage of activity for the budgeted performance based on the step 1;

Identify the cost items to be included in the budget;

Determine the cost behavior of each item over the relevant range;

Separate the cost items into variable, fixed and mixed;

Select the specific levels of activity to be budgeted;

Use the cost behavior under item 4 to estimate the budgeted amounts for each cost item at the different levels selected in step 6.

How To or Steps to Establish A Budget

The steps are as follow:

(1) Select a budget period:

The length of the budget period depends on the kind of plan being made. Some budget periods will follow the natural cycle time, for example, one year for a sales budget. Other budget periods may be determined by management, for example five years for capital expenditure budget.

(2) Setting or ascertaining the objectives:

The objectives of the business have to be set so that the plans may be prepared to achieve those objectives;

(3) Prepare basic assumptions and forecasts.

A statement of the basic assumptions on which the individual budgets are to be base must be prepared. A forecast is then made of the general economic climate and conditions in the industry and for the company. Forecasts are made for the following areas: sales, productions, selling and distribution expense, administrative expense, production expense, research and development expense, cash, purchases, capital expenditure, working capital and master forecast namely the Income Statement and Balance Sheet Forecasts.

(4) The need to consider any limiting factor.

A limiting factor prevents a company from expanding to infinity. Limiting factors affect budgeting and they must be considered to ensure that the budgets can be attained. Examples are: raw material shortage, labor shortage, insufficient production capacity, low demand for products, lack of capital,etc

(5) Finalizing forecasts:

The forecasts are finalized and now become budgets which are formally accepted.

(6) Implement the budget:

Budgets which are accepted must be implemented. The budget becomes the standard by which performance is measured.

(7) Review forecasts and plans:

Forecasts and budgets have to be reviewed at regular intervals. Changing environment may require changes to be made. Revised budgets may have to be prepared.

Steps or How To Balance A Trial Balance (Part 5)

In the event that your trial balance doesn’t balance, go through the following bookkeeping tips/steps in the suggested order to ensure that the error can be detected soonest possible:

1. Find out the exact amount of your error: by how much are you out of balance?
2. Is the error $10,$100 or $1,000? You probably failed to carry when adding or to borrow when subtracting or you may have made a slide error in posting.
3. Look at your debits and credits. Is there an entry exactly equal to your discrepancy?
4. Does the amount of error divide evenly by 2? Look for a duplicate debit or a duplicate credit posting where there should be one of each. A debit may have been posted as a credit or vice versa
5. Does your out-of-balance number divide evenly by 9? Look for a transposition error. At this point, most errors have been located.
6. Add the trial balance columns again to check for accuracy. Next, recheck the addition while looking for a misread number. Sometimes a 1 is taken for a 7 or a carelessly written 3 or 5 may have fooled you.
7. Compare listing on the trial balance with each ledger account balance to ensure that you have not omitted any account balance in your trial balance.
8. Recalculate each ledger account balance.
9. Trace each ledger posting back to its place in the journal.Check off each number in the ledger and in the journal as you verify it. Then look for numbers with no check mark.
10. Verify that journal debits equal the journal credits