Revenue

Definition The amount a business earns by selling goods or providing services is called revenue. Explanation The remuneration of goods sold or services provided is called revenue. It includes both cash received for goods sold and services rendered and accounts receivable for goods sold and services rendered on credit. Revenues appear in trial balance are …

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Explanation and treatment of direct expenses

All direct expenses are recorded on the debit side of Trading Account. The detailed explanation of some direct expenses is as under: Opening stock or opening inventory The opening stock consisted of different types of finished goods in case of trading business. Whereas in case of manufacturing business opening stock consisted of raw materials, work-in-progress …

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Difference between cost and expense

In manufacturing accounting, it is very much important to have a clear difference between cost and expense, though in general two terms are considered interchangeable. What is Cost Cost? The amount of cash paid or liability incurred for a commodity or service is referred to as the cost of that item. The commodity or service …

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Cost accounting formulas

The following formulas can be used to find out different costs. Prime cost = Direct material consumed + Direct labour Conversion Cost = Direct material + Factory overhead Factory cost = Direct material + Direct labour + Factory overhead Cost of Goods Manufactured = Direct material consumed + Direct labour + Factory overhead + Opening …

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Total cost of manufacturing

The total cost of manufacturing a product has three elements, namely: Raw material used (or Direct material cost) Direct labour (or Direct wages) Production overhead (or Factory overhead, or Works overheads) A manufacturing business maintains a separate raw materials purchases account for each type of raw material used by its factory. Similarly, it maintains separate …

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Direct and indirect materials cost

Definition and Explanation Direct material cost A direct material is any commodity that enters into and becomes a constituent element of a product. Thus cotton is a direct material for textile goods, leather for shoes, wood (or steel or plastic) for furniture, etc. Some products have more than one direct material, e.g. biscuits are made …

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Direct and Indirect Expenses

Expenses The cost which has been expired in the process of earning income is called an expense. In simple words, the cost of doing business is called expenses. These include the routine expenses like purchases, salaries, commission, utility bills etc. In other words, expenses are the cost of the goods and services used up in …

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Factory Overheads

Definition of Factory Overheads Factory Overheads may be defined as the aggregate of indirect materials, labour and other costs which cannot conveniently be identified with the articles produced or services rendered.  The benefits of these cannot be identified with a particular cost unit. Instead, they are apportioned among cost units on an equitable basis. Overheads constitute …

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Difference between trading and manufacturing concern

The difference between Trading and Manufacturing concern can be explained with the help of following points: Nature of purchase Trading Concern: These business institutions purchase merchandise in ready shape to sale condition, for example, furniture dealer purchase furniture from the manufacturer and sell it to customers without additional processing. Manufacturing Concern: Manufacturing institutions employ labour and machinery …

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Stocks of a manufacturing concern

A manufacturing business would have, at the beginning and end of each financial year, the following stocks: Raw Materials Accounted for when calculating the cost of raw material used in Manufacturing Statement. Finished Goods These are goods ready for sale, accounted for in trading account when calculating cost of goods sold. Work in Progress These …

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Trading account of a manufacturing company

In the Trading Account of a manufacturing company, the Production Cost figure (as calculated by drawing up the Manufacturing Statement) should be used in the place of “Purchases” figure. Opening stock of finished goods should be added to Production Cost (or Cost of Goods Manufactured) to arrive at the value of goods available for sale. From …

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