The difference between a trading account and a manufacturing account is that while manufacturing account ____
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Correct Answer: Option C
Explanation:
The Manufacturing Account and the Trading Account are both part of final accounts, but they serve different purposes and cover different stages of the production and sales process.
1. Manufacturing Account
- Prepared by manufacturing businesses.
- Calculates the cost of production (i.e., the cost to manufacture goods).
Includes:
Raw materials used
Direct labor
Factory overheads
Opening & closing stock of raw materials and work-in-progress
2. Trading Account
- Follows the manufacturing account (or is used alone by trading businesses).
- Calculates gross profit by comparing cost of goods sold (COGS) with sales.
Focuses on:
Finished goods
Opening & closing stock of finished goods
Sales and cost of goods sold
Why C is Correct:
'Manufacturing account is concerned with the cost of production, while the trading account is not.'
This correctly identifies the primary distinction - the manufacturing account tracks the cost of producing goods, whereas the trading account deals with buying and selling of finished goods.
The Manufacturing Account and the Trading Account are both part of final accounts, but they serve different purposes and cover different stages of the production and sales process.
1. Manufacturing Account
- Prepared by manufacturing businesses.
- Calculates the cost of production (i.e., the cost to manufacture goods).
Includes:
Raw materials used
Direct labor
Factory overheads
Opening & closing stock of raw materials and work-in-progress
2. Trading Account
- Follows the manufacturing account (or is used alone by trading businesses).
- Calculates gross profit by comparing cost of goods sold (COGS) with sales.
Focuses on:
Finished goods
Opening & closing stock of finished goods
Sales and cost of goods sold
Why C is Correct:
'Manufacturing account is concerned with the cost of production, while the trading account is not.'
This correctly identifies the primary distinction - the manufacturing account tracks the cost of producing goods, whereas the trading account deals with buying and selling of finished goods.