What is Manufacturing Accounting?
Manufacturing accounting is a type of cost accounting. While general accounting deals with income and expenses, this type of accounting deals with the finances of managing manufacturing operations. It includes:
- Raw materials: The direct cost of materials used in production
- Direct labor: The pay for workers directly involved in manufacturing
- Overheads: Indirect production costs, like Equipment upkeep, factory rent, quality control, and utilities
As the manufacturing accounting process can get complicated, it is easier to outsource it by hiring accounting services in Dubai.
Feature | Manufacturing Accounting | General accounting |
Definition | Tracks and manages the costs associated with the production of goods | Deals with a company’s overall financial transactions, including income and expenses |
Cost Categories | Focuses on direct costs (raw materials, labor) and indirect costs (manufacturing overhead) | Deals with broader income and expense categories for the entire business |
Inventory Management | Requires detailed tracking of raw materials, work-in-progress (WIP), and finished goods to determine production costs | Primarily focuses on finished goods inventory for a business that buys and sells |
Reporting | Provides internal reports for management, such as the cost of goods manufactured (COGM) and cost of goods sold (COGS), for strategic decisions | Creates standardized financial statements (e.g., balance sheet, income statement) for both internal and external stakeholders |
Costing Methods | Employs specific costing methods like job costing, process costing, or standard costing to determine the cost of each product | Typically uses simpler methods for inventory valuation like FIFO or LIFO for general financial reporting |
User Base | Primarily used by internal management to improve efficiency, control costs, and make pricing decisions | Used by both internal and external users, including investors, creditors, and government agencies |
Accounting Best Practices for Manufacturing Companies
These are some accounting best practicing for companies in the industrial sector:
1. Start automating: Automating tasks using accounting software can help reduce human errors. You can automate your payroll, track your expenses, and get it to handle invoicing.
2. Practice inventory management: A major manufacturing accounting best practice is having strong inventory control. You should keep track of work-in-progress goods, completed products, and your raw materials. This will help you avoid overspending on stock.
3. Monitor production costs: You have to track your costs in real time instead of conducting monthly reviews. This practice catches mistakes early, making it easier for your management to implement preventative measures.
4. Data analysis: Having robust data analysis practices will help your company thoroughly review your financial data and figure out the areas you can improve efficiency.
Get Certified Expert Help with Your Books
How UAE Industrial Companies Can Improve Their Manufacturing Accounting
- Outsource your accounting: The easiest way industrial companies can improve their manufacturing accounting practices is by hiring a specialist. Working with a cost accountant can help you avoid errors in your books.
- Follow reporting standards: The UAE follows the IFRS (International Financial Reporting Standards), so you should make sure your business stays compliant. This also helps you build credibility with potential investors and clients.
- Link accounting to your operations: Industrial companies can link their production data into their financial reports. This will give them real-time updates about their performance.
Get Expert Accounting With A&A Associate
Manufacturing accounting can be difficult to understand but having an expert help you is an easy way to avoid mistakes and keep your business compliant, especially since the introduction of corporate tax in UAE.
Working with A&A Associate’s expert accountants gives you access to streamlined financial management, detailed bookkeeping, cash flow maximization, and increased profitability. Get in touch for a free consultation today!
