SUMMERY
INTRODUCTION
The manufacturing sector, production means making a product either by using a machine or hand or both. It’s a component of goods producing industry. Unlike trading or service businesses that buy products and sell at a higher price to make the profit, manufacturing instead make products that they finally sell. Manufacturing companies that produce and sell goods needs an accounting system that does not solely look at the accounting aspect only but also sale and purchase of the goods. By this, the accounting system for the manufacturing industry is more complex than the service sector does not sell good and there lacking inventory (Elliott & Elliott, 2008). The complexity of the accounting system is brought about because of the need to track manufacturing costs all the way in the production process to the final products sold.
Service companies offer services to their clients and do not sell the physical products. One fundamental difference between the service sector and the manufacturing sector is that they do not have the cost of goods sold because of the absence of the goods sold. There may be those direct costs that are associated with the service provided but there is no physical product.
LITERATURE REVIEW AND ANALYSIS
INCOME STATEMENT
Let us focus on the differences seen in the income statement, for example of the income statement for the manufacturing sector Apple Inc. in the United States of America for the year 2014.It's evident line item for net sales and cost of sales because it deals in manufactured tangible products. Unlike the service that focuses on the total revenue majorly from the net income interest and non-income interest as seen in the Citizens Bank based in the USA too. It means that the service sector deals with the service delivery with are intangible products (Kimmel, Weygandt, & Kieso, 2007)
The cost of goods in manufacturing industries is calculated by; Closing finished goods=opening finished goods+ cost of finished goods manufactured cost of finished goods sold. Unlike the service sector that is estimated by; the cost of goods sold=opening stock+ purchases-closing stock; this method based on the calculation of the value of closing stocks got by closing stock=opening stock+ purchases-cost of goods sold.
BALANCE SHEET
The balance sheet of a manufacturing sector is a financial statement that shows the financial declaration of a company. It includes the assets in the possession of the company and those liabilities owed to the enterprise and the company’s net worth at the end of the financial year (Peterson Drake & Fabozzi, 2006). The balance sheet is, therefore, a vital tool in the analysis of finance of any concern. It indicates the financial position of the company at a particular time and by so it assists the shareholders in knowing the company’s solvency, liquidity, and performance. The balance sheet divided into two categories; total assets whose balance must be the same to shareholders’ equity and liabilities, this division is seen on the balance sheet of Apple Inc. in the USA 2014, where the total of $231,839 balances the liabilities and equity shareholders.
The balance sheet for the service sector shows the company’s financial health. The source of the funds is demonstrated by the liabilities, for the loan application of credit is illustrated in assets accounts and the owner’s funds at specific date shows the shareholders net worth, these information makes balance sheet of the service industry be complex. The stock divided into two headings: liabilities and stockholders’ equity and assets whose total amount must be equal. Referring to the 2014 assessment of Citizens Bank. It’s evident that total of the two divisions must be same for both the manufacturing sector and service sector.
CASHFLOW STATEMENT
Cash flow account is one of the core financial statements. It reports the generated cash and used cash during a given period. The period to which the cash flow statement prepared determined by the company. It’s always developed on the accruals basis in the accounting process. It means that the reported revenue may not have been collected same to reported expenses might not have been paid. The balance sheet is always reviewed to determine the facts, but the statement of cash flow has already integrated information. Both the manufacturing sector and the service industry to help the investors regulate and analyze their financial operations. Manufacturing account and hold product inventory are making their income statement compound. Most of the calculations of inventory are through the cost of goods line item, unlike service sector that is lacking cost of goods line item. Both cash flow statements are divided into three broad categories of Operating activities, investing activities and Financing activities, as shown in the cash flow statements 2014, for the Apple Inc. and the Citizens Bank.
DECLARATION OF OWNER’S EQUITY
Statement of shareholder’s equity, it explains the changes in the section of equity in the balance sheet during a given period. It provides additional information on investment related events during the reporting period. It’s a fundamental reconciliation focusing on how the calculation was ending equity made. The initial investment is reported then followed by the new investments received from the investors and the net income annually. It's the same for both the service and manufacturing sector. Referring to the two companies, the statement of owner’s equity in the service sector is more comprehensive, and it’s divided into seven categories. Stock, common stock, additional paid-in capital, treasury stock at cost, retained earnings, accumulated other comprehensive income, whose total gives the shareholder equity unlike the manufacturing Apple Inc. that only has four categories.
CONCLUSION
In this research, the noticeable differences in the four financial statements have been presented and found that no matter the slight content differences they financial statements still serve the same function to the stakeholders.
References
Elliott, B. & Elliott, J. (2008). Financial accounting and reporting. Harlow: Financial Times
Prentice Hall.
Peterson Drake, P. & Fabozzi, F. (2006). Analysis of financial statements. Hoboken, N.J.: Wiley.
Kimmel, P., Weygandt, J., & Kieso, D. (2007). Financial accounting. Hoboken, NJ: John Wiley.
