What Are the Best Tips for Preparing a Manufacturing Company Income Statement?

A manufacturing company income statement generally has copious information on the cost of goods sold for produced goods. Therefore, an important section on this statement is the opening section that details the gross profit for manufacturing processes. The best tips for preparing a manufacturing company income statement include the accurate preparation for cost of goods sold, separate lines for revenue types on the income statement, and the expense of all nonproduction costs for the period in which a company manufactures goods. Managerial accountants are necessary to help prepare this statement, along with financial accountants. The final statement is most likely for external and internal use.

Cost of goods sold is perhaps the most important part of the first section of a manufacturing company income statement. The basic formula for cost of goods sold is adding current production costs — such as materials, labor, and overhead — to beginning work in process and subtracting ending work in process. The result is the costs associated with cost of goods manufactured, which then goes into the company’s finished goods accounting. The cost of goods sold for a given period then goes onto the company’s income statement, reducing the gross revenue earned during the period.

Manufacturing companies may have several different revenue types for a period depending on the types of goods sold. For example, a company that manufactures widgets may have several different widget types it sells to customers. Listing the different revenue lines on the manufacturing company income statement can help a company determine which items are the best sellers. In some cases, a more detailed manufacturing company income statement may list multiple revenue lines and multiple cost of goods sold lines that match revenue lines. This allows for more detail on this section; in some cases, an aggregate statement consolidates this information for external use.

The expenses listed on a manufacturing company income statement should only include items that are nonproduction costs. Anything a company does not need to use for producing goods should be in the expense section of the income statement. Including too many production-related costs in the expenses may artificially lower net income for a given period. These extra costs should remain in the company’s inventory account, which is on the balance sheet. This more accurately describes the activities of a manufacturing company through financial statements.