Definition The amount a business earns by selling goods or providing services is called revenue. Explanation The remuneration of goods sold or services provided is called revenue. It includes both cash received for goods sold and services rendered and accounts receivable for goods sold and services rendered on credit. Revenues appear in trial balance are … Read more

Explanation and treatment of direct expenses

All direct expenses are recorded on the debit side of Trading Account. The detailed explanation of some direct expenses is as under: Opening stock or opening inventory The opening stock consisted of different types of finished goods in case of trading business. Whereas in case of manufacturing business opening stock consisted of raw materials, work-in-progress … Read more

Difference between cost and expense

In manufacturing accounting, it is very much important to have a clear difference between cost and expense, though in general two terms are considered interchangeable. What is Cost Cost? The amount of cash paid or liability incurred for a commodity or service is referred to as the cost of that item. The commodity or service … Read more

Cost accounting formulas

The following formulas can be used to find out different costs. Prime cost = Direct material consumed + Direct labour Conversion Cost = Direct material + Factory overhead Factory cost = Direct material + Direct labour + Factory overhead Cost of Goods Manufactured = Direct material consumed + Direct labour + Factory overhead + Opening … Read more

Total cost of manufacturing

The total cost of manufacturing a product has three elements, namely: Raw material used (or Direct material cost) Direct labour (or Direct wages) Production overhead (or Factory overhead, or Works overheads) A manufacturing business maintains a separate raw materials purchases account for each type of raw material used by its factory. Similarly, it maintains separate … Read more

Direct and indirect materials cost

Definition and Explanation Direct material cost A direct material is any commodity that enters into and becomes a constituent element of a product. Thus cotton is a direct material for textile goods, leather for shoes, wood (or steel or plastic) for furniture, etc. Some products have more than one direct material, e.g. biscuits are made … Read more

Direct and indirect labor cost

What is Labour? Labor represents cost of services of human resources. labour is the most mobile factor of production. Labour is divided into two types: Direct labour Indirect labour Direct labour Direct labour is the effort of such persons who are directly involved in the production of a good. For example. in a small carpentry, … Read more

Prime Cost

What is Prime Cost? – Definition Prime Cost is the aggregate of direct material cost, direct labor cost and direct expenses. It is also known as ‘Flat Cost’, ‘First Cost’ or ‘Direct Cost’. The total of a product’s direct costs is called the prime cost. Once the cost of raw materials used in a particular … Read more