financialtreat – will explain the Advantages of Using Manufacturing Finance for Companies that you will get in the following article. let’s look at this article carefully!
Manufacturing finance is written information that describes the details of the financial condition of a manufacturing company in a certain period. This understanding is based on the meaning of financial statements and manufacturing companies separately.
Financial statements themselves are written records that describe the financial condition of a company in a certain period. The list of reports listed on manufacturing finance includes balance sheet statements, loss sheets, cash flows and changes in capital.
While a manufacturing finance company is a company that is engaged in focusing on the management of raw materials or raw materials into finished products and continues until the distribution or sales process directly. There are several classifications found in manufacturing companies, namely including raw material inventory, process material inventory and finished goods inventory.
Types of Financial Statements of Manufacturing Companies
Based on the type of manufacturing financial statements are divided into several parts as follows.
1. Report on Cost of Goods Manufactured
Manufacturing companies operate in the main activity of producing raw goods into finished goods, so there are production expenditure costs reported in the form of cost of goods produced. This report serves to determine the value of the inventory of production staples as well as the value of overhead costs incurred during the production process.
manufacturing finance Cost of Goods Manufactured Report
The cost of goods produced also affects the selling price of finished goods that will be marketed and received by consumers. Among the costs contained in this report are raw material costs, direct labor costs and factory overhead costs. The following is an explanation of each of these costs.
Value of Raw Material Costs
The cost of raw materials is a large value incurred by the company to procure production materials. The raw materials used can be raw goods, semi-finished goods or finished goods from other manufacturers.
Value of Direct Labor Costs
Direct labor is power that plays a direct role in the production process and determines the results of performance and goods produced both with manual systems and automatic machines. So that direct labor costs are the amount of counter-value given to the party.
Value of Factory Overhead Costs
Overhead costs are the amount of needs incurred during the production process and are not classified as raw material costs or direct labor costs. Overhead costs are divided into three types, namely the cost of auxiliary materials, indirect work costs and depreciation costs of factory buildings.
2. manufacturing finance Income Statement
Broadly speaking, the income statement at a manufacturing finance company is the same as the income statement contained in ordinary financial statements. That is, it consists of a part that shows the value of income as well as the value of the difference that results in a profit or loss against a period that has been passed.
However, in making an income statement for a manufacturing finance company, there are four basic elements that must be met as important indicators in the placement of the income statement.
Revenues atau Pendapatan
Revenues or revenue is the value of company revenue obtained from the sale of products that have been made. The proceeds of this revenue are then calculated with the cost of production and services used during the production and sales process to then obtain the net profit value.
Expense or Cost
Expense or cost is the value of the costs needed by a company to obtain revenue results.
Loss or loss is an indicative report that shows the amount of loss value obtained from the expense value that is greater than revenues.
3. Manufacturing Balance Report
The balance sheet of a manufacturing company is made just like a balance sheet in general. In the balance sheet of the manufacturing company, there are reports on assets and assets. The asset report shows the main financial sources obtained by the company including the company’s assets in the form of cash, receivables, inventory and others. Meanwhile, the pasiva report contains debts and capital owned by manufacturing companies.
4. Report on Changes in Manufacturing Capital
The fourth part is a capital change report containing the nominal initial capital of the company, changes in capital, the value of dividends distributed to shareholders and other financial statements related to the activities of the manufacturing company. As with other reports of changes in the company’s capital, manufacturing companies also arrange these sections equally based on their details.
Benefits of Making Financial Statements of Manufacturing Companies
Financial reports on manufacturing have some good benefits for the development and progress of the company. Among some of these benefits are the following.
1. Useful as a Guideline for Financial Statements
Through structured financial reporting in each period, it will help the company in monitoring the amount of production cost needs, sales levels and profit and loss results obtained.
The company can also find out the difference between costs and revenue more clearly and in detail so that it can be decided to make less effective modifications to expenses to increase profit margins.
2. Useful as Material for Company Performance Indicators
By compiling financial statements, this will act as an indicator that shows the level of performance of manufacturing companies both interm and external. For public companies, the level of performance will greatly affect the interest or interest of stock investors.
3. Useful as Comparison Data
Between the financial statements of one period and another period is useful as comparison data so that the company can take action based on the results of the comparison. This activity also influences considerations regarding the addition of research, the procurement of new technologies and the selection of alternative materials that are more friendly.
4. Useful for Monitoring the Company’s Financial Health
Healthy finance has a sense of the company’s development in line with the performance and profits obtained. Therefore, the financial statements of manufacturing companies can be used as monitoring material to ensure the company’s financial condition remains stable and profitable.
Tips for Preparing Manufacturing Business Financial Reports
Reiterating, manufacturing companies are business sectors that depend their business on the production process. Materials, machinery, equipment, and labor are included in the calculation of the financial statements of manufacturing companies. Therefore, making financial reports in this field is somewhat more complex because it requires a special list of details of production costs.
However, you don’t have to worry. This article outlines tips for preparing financial statements of manufacturing companies that you can use.
1. Know the uniqueness of the business
Each company certainly has its own uniqueness. The same goes for manufacturing companies. If you compare with trading companies, manufacturing companies independently produce raw materials and sell products to suppliers. This is why manufacturing enterprises require additional calculations as the need for production activity.
Between one manufacturing company and another is also different. It depends on what type of company you are developing. For example, the textile business with automotive. Different raw materials and products, of course, the details of the cost are different.
2. Choosing the right accounting method
Financial statements are always related to accounting. So, choosing the right accounting method is a strategy to get the accuracy of financial statements. There are two accounting methods that entrepreneurs often choose, namely Inventory Cost and Production Cost.
Inventory cost is a method for determining the selling price based on calculating the cost of inventory. You can use FIFO (First in First Out), LIFO (Last in First Out), Weight Average Cost, as well as specific identification.
Production costs are costs incurred as a result of the production activities of goods of a manufacturing company.
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3. Ensure business data remains accurate
The selection of accounting methods is aimed at obtaining the final result of the financial statements. After that, you must ensure that all data in the financial statements accumulates accurately. This is indicated by data that must be correct and accountable to you. Therefore, you need to monitor several aspects, including:
- Business transactions involving the income and expenditure of the company’s budget.
- Business assets and liabilities to support accounting records.
- Cash through bank reconciliation.
4. Using software help
If you fully entrust the calculations to manual labor, the probability of errors will be very high. Especially considering that the budget of a manufacturing company is so complicated, of course you can’t complete the financial statements in a short time.
With the help of competent Accounting Software, you can overcome these problems. The accuracy of its analysis has been able to show the financial condition in real-time.
And that’s a complete explanation of manufacturing finance. Hopefully, the information will be useful. And see you in the next article.