What Is Manufacturing Accounting? What Does It Involve? How Does the Production Booking Process Work?

Vũ Khôi

Author at Wotech Electronics Blog

Alongside trading-and-services accounting, manufacturing accounting is now also a widespread form of accounting. This article provides useful information covering everything from the basics to the finer details of manufacturing accounting: starting from the definition and organizational structure, to comparing this form of accounting with trading-and-services accounting, as well as operational specifics.

What is manufacturing accounting?

During the production process that creates a company's products (through labor, means of labor, and objects of labor), economic transactions arise for calculating various cost areas: raw material costs, asset depreciation, wages, and organizational and management costs, and so on. Manufacturing accounting is therefore the process of consolidating the costs incurred during production to create products. The ultimate goal is to calculate the actual cost of the product.

WHAT IS THE DIFFERENCE BETWEEN MANUFACTURING ACCOUNTING AND TRADING-AND-SERVICES ACCOUNTING?

So what distinguishes the two common forms of accounting — manufacturing accounting and trading-and-services accounting?

• Trading-and-services accounting has only two stages: buying in and selling out. Profit usually comes from the sales margin on a product or on accompanying services.

• Manufacturing accounting, by contrast, may include the trading and services portion, the details of raw materials, and commercial transactions within production. As you can see, producing a product involves purchasing raw materials, warehousing, creating the product, selling it, and so on — so manufacturing accounting must track the processes and book nearly every account in the accounting system.

What manufacturing accountants do

Manufacturing accounting — like the accounting profession in general — has its own specific duties. Knowing what the work involves means understanding what it takes to do it well. So to excel at manufacturing accounting, accountants should pay attention to the following tasks:

Bookkeeping

• Tracking purchased goods and raw materials, supplier payables, and passing the figures to the chief accountant.

• Manufacturing accountants need to closely track the goods and raw materials the company pays for, then pass the figures to the chief accountant.

• Tracking and booking manufacturing accounting fully and promptly, so that transactions are updated daily.

• Opening ledgers to track fixed assets, fixed-asset depreciation, and tools and supplies.

• Manufacturing accounting and costing: calculating production cost and cost of goods sold is one of the goals of manufacturing accounting. These costs are based on standards for materials, labor, asset depreciation, and so on.

• Collecting and preserving accounting vouchers, as well as keeping accounting data confidential.

Warehouse management

• Organizing, arranging, storing, and classifying materials and goods in the warehouse in an optimal way that saves costs and keeps things easy to find and see

• Reviewing and checking the issuance and receipt of raw materials and goods.

• Monitoring the warehouse continuously to know its storage condition, finished-goods quantities, and so on.

• Being responsible for warehouse safety

Managing and directing warehouse keepers:

• Guiding and assigning work to head and assistant warehouse keepers.

• Pushing and supervising staff so they comply fully with warehouse rules and regulations

• Evaluating employees

Coordinating with other departments:

• With production units, the manufacturing accountant needs to confirm payroll sheets.

• Providing accounting data promptly to the relevant departments.

What you need to know about the manufacturing accounting process

For accountants new to the profession learning about manufacturing business accounting, grasping the accounting processes within the business is extremely important. Once accountants know the accounting process at a company, they can pinpoint exactly which step an error occurred in, assign responsibility to the right person, and determine how to correct it appropriately. A clear understanding of the process thus becomes a prerequisite for doing manufacturing accounting. The article below will help you better understand the accounting bookkeeping process at a manufacturing business.

Step 1: Collecting vouchers

Invoices and vouchers:

• Legal invoices: Registered with the tax authority and approved for issuance. For self-printed invoices, they must be printed per the prescribed form and accepted by the tax authority.

• Valid invoices: The invoice must contain the full contents and fields required on an invoice, such as: day, month, and year of issue; the buyer's and seller's names along with the company address and tax code; the payment method; including serial numbers, unit of measure for the type of goods, and the goods/services names — written concisely and completely. There is also the quantity, the unit price for each good/service, and the amount. Finally, the total payable, inclusive of the tax rate and VAT. The signatures of the buyer, the seller, and the Director (or a power of attorney with a seal hanging in the top-left corner of the invoice). Invoices must be issued in strict accordance with the principles required by Circular No. 39/2014/TT-BTC dated March 31, 2014.

• Reasonable invoices: The content on the invoice must be correct and consistent with the business's commercial activities.

Bank vouchers

• Debit notes, payment orders, checks

• Credit notes

• Bank accounting slips

Vouchers for payments into the state budget

• Corporate income tax (CIT)

• Value-added tax (VAT)

• Personal income tax (PIT)

Step 2: Entering vouchers into the recording ledgers via journal entries

Recording the economic transactions that arise: invoices, state budget payment slips, payroll sheets, allocation tables, and so on are entered into the relevant accounts in the accounting ledgers.

Step 3: Consolidating costs

Based on the cost-collection vouchers, the accountant books manufacturing accounting into the ledgers in the following order:

From the article above, we hope readers have gained a detailed, objective view of manufacturing accounting work. Every accounting job in different stages shares common ground and has its differences, but every role requires a firm grasp of the fundamentals: the definition, the significance, the specific duties, and the things to watch out for on the job. Readers can save this article or download the summary images in it to remember the knowledge and apply it. Leave a comment below if you have any questions about manufacturing accounting!

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