This article outlines the differences between trading and manufacturing concerns. Trading Concern: These businesses purchase merchandise in a ready shape to be sold. For example, a furniture dealer purchases furniture from a manufacturer and sells it to customers without additional processing. Manufacturing Concern: Manufacturing institutions use labor and machinery to convert materials into finished goods. For example, a furniture manufacturer converts wood and other materials into finished furniture after applying labor. Trading Concern: Opening and closing inventories are only of one type (i.e., merchandise in trade). Manufacturing Concern: Opening and closing inventories are of three types (i.e., raw- materials, work-in-process, and finished goods). Trading Concern: Given that trading concerns do not produce anything, the accumulation of accounting data relevant to production processes is not needed in these organizations. Manufacturing Concern: Accounting procedures provide for the accumulation of accounting data identified with production processes. Trading Concern: The sale price is determined by adding profit to the purchase price. Manufacturing Concern: The sale price is determined by adding profit in per-unit cost. Trading Concern: No extra ledgers (e.g., factory ledgers) are needed. Manufacturing Concern: Additional ledger accounts are required. Trading Concern: Only roll acquaintance is prepared because problems such as manufacturing-related issues do not arise. Manufacturing Concern: Wages and salaries are paid to workers in production and office workers, so separate payrolls are prepared because the cost of the production department is charged to the manufacturing cost. The wages and salaries of office workers are charged to selling and administration costs. Also, a separate payroll is prepared for direct labor and indirect labor. Trading Concern: It does not matter whether intangible assets are recorded. In most cases, it is preferred not to record intangible assets. Manufacturing Concern: Intangible assets (e.g., cost incurred on research, patents, designs, and experiments) must be recorded and considered when calculating unit cost. Trading Concern: No distinction is made between costs and expenses. Manufacturing Concern: A clear distinction is made between costs and expenses. Trading Concern: The fixed assets used in trading concerns are smaller in number compared to manufacturing concerns. Usually, no separate ledger is maintained for fixed assets. Manufacturing Concern: The number of fixed assets used in manufacturing organizations is large, so a separate ledger is maintained for them.Nature of Purchases
Nature of Inventories
Accounting Data
Determination of Sale Price
Ledgers Required
Payroll
Intangible Assets
Costs and Expenses
Fixed Assets
Differences Between Trading and Manufacturing Concerns FAQs
These businesses purchase merchandise in a ready shape to be sold. For example, a furniture dealer purchases furniture from a manufacturer and sells it to customers without additional processing.
Manufacturing institutions use labor and machinery to convert materials into finished goods. For example, a furniture manufacturer converts wood and other materials into finished furniture after applying labor.
It is worthwhile for transactions of a similar nature to be sorted out and accumulated in one place. This place is known as the ledger.
These are long-lived items like equipment and real estate. In contrast to short term assets, Fixed Assets are expected to last beyond a year. A fixed asset is often a Capital Expenditure. Although the business will incur the expense year one, the expense will generally be incurred evenly over the useful lifetime of the asset on Financial Statements.
Resources with value but without substance fall into this category, such as trademarks, patents, and intellectual property.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
