Nature of a Manufacturing Business

Manufacturing Business

This business buys raw materials then converts them into finished goods then sells them to customers at a selling price.

The primary product for this business is the goods they produce or manufacture.


Operating Cycle of a Manufacturing Business

Assets Elements

Classification of Asset

Generally, assets are classified as follows:

• Current
• Non-Current 

Assets are classified as Current Assets when any of the following criteria are met:

1. It is cash or cash equivalent which is not restricted for current use.
2. It is expected to be realized, or is held for sale or consumption in the normal course of the business' operating cycle.
3. It is held for trading purposes or for the short-term and expected to be realized within twelve months of the SFP date.

Operating cycle means the time between the acquisition of materials entering into a process and its realization in cash or an instrument that is readily convertible into cash.

Non-Current Assets are those assets which do not meet the criteria of current assets.

Generally, they include those tangible and intangible assets of a long-term nature (usually, more than 12 months from SFP date).

Examples of Assets Elements

Current Assets Elements

• Cash - 
• Accounts Receivable
• Notes Receivable
• Accrued Interest Receivable
• Inventories
• Prepaid Expenses

Non-Current Assets Elements

• Land
• Building
• Furniture and Fixture
• Equipment

Contra-Valuation Accounts

• Allowance for Doubtful Accounts
• Accumulated Depreciation

Normal Balance : Debit

Asset accounts has normal debit balances.

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