Manufacturing Chart of Accounts Example [+ How to Create]

Your production runs smoothly and orders ship on time, but your financials tell a very different

story. Material costs seem high, but you can’t pinpoint where the money goes. Labor expenses increased, but which production stages drive the change? Without a proper manufacturing chart of accounts, you operate without clear financial visibility.

This lack of clarity has real consequences. Research from IHL Group shows that inventory distortion cost retailers and manufacturers $1.7 trillion globally in 2024, with $1.2 trillion from out-of-stocks and $554 billion from overstocks. Manufacturers need a chart of accounts that accurately captures costs at every stage of production to understand where money is being spent and how efficiently operations are running.

Understanding Manufacturing Charts of Accounts

A manufacturing chart of accounts organizes financial accounts into a structured system designed for production businesses. Unlike service companies that focus primarily on revenue

and operating expenses, manufacturers must track inventory as it moves through distinct

stages. This requires dedicated accounts for raw materials, work in progress, and finished

goods.

The structure mirrors your production process. When you purchase steel, wood or components, those costs enter raw materials inventory accounts. As your team begins fabricating or assembling, costs transfer to work in progress accounts. Once manufacturing completes, total production cost moves to finished goods inventory. When you sell the product, that cost hits your income statement as cost of goods sold.

The system links directly to your general ledger and must align with2 established by the Financial Accounting Standards Board.

Essential Account Categories

Your chart needs five main sections: 

• Assets — cash, receivables, and all inventory categories
• Liabilities — payables, debt, and other obligations
• Equity — owner contributions and retained earnings
• Revenue — sales generated from your products
• Expenses — all costs required to operate the business

Inventory accounts need special attention. Raw materials inventory holds purchased supplies waiting to enter production. For example, a furniture maker tracks wood, hardware and fabric here. A food manufacturer records flour, sugar and packaging. Materials stay in raw materials until production pulls them for use.

Once production begins, items move into work in progress (WIP) inventory. WIP includes

anything partially completed—such as welded bicycle frames awaiting paint, wheels not yet

assembled, or finished bikes pending quality inspection. This account grows as materials, labor,

and overhead are added during manufacturing.

WIP value is typically calculated using the formula:

Beginning WIP + Manufacturing Costs – Cost of Goods Manufactured = Ending WIP.

Companies minimize time inventory spends in WIP status because extended periods indicate production bottlenecks that tie up capital.

Cost of Goods Sold Structure

Cost of goods sold (COGS) represents one of your largest income statement items. The calculation follows: 

Beginning Finished Goods Inventory + Cost of Goods Manufactured – Ending Finished Goods Inventory. 

This directly impacts gross profit, calculated as revenue minus COGS.

Manufacturing overhead captures indirect production costs. These include indirect materials like lubricants, indirect labor such as factory supervisors, factory utilities, equipment depreciation and quality control expenses.

To manage these costs effectively, many manufacturers use a Manufacturing Overhead Control

account, supported by subsidiary accounts for specific cost types. This provides detail for overhead allocation while keeping main financial statements readable.

Create Your Manufacturing Chart

Start by mapping your production process and identifying direct versus indirect costs. Choose a numbering system with room for growth. From there, establish a numbering system that allows

for future expansion. Most manufacturers use a four- or five-digit structure, with the first digit

indicating the account type: 1 for assets, 2 for liabilities, 3 for equity, 4 for revenue, and 5 for

expenses.

Within assets, use 11 for cash accounts, 12 for accounts receivable, 13 for raw materials inventory, 14 for work in progress and 15 for finished goods. This structure keeps accounts easy

to locate and provides room to add new categories as your operations grow. This makes locating accounts simple and allows easy additions.

Customize categories to reflect your environment. A metal fabricator needs different tracking than a food manufacturer. Use parent accounts with sub-accounts for flexibility. A Manufacturing Overhead parent might include Factory Supplies, Factory Utilities and Equipment Maintenance as sub-accounts.

Document each account with clear descriptions, and avoid creating too many accounts initially. Start broad and add detail as needed through quarterly reviews.

Get Expert Support for Manufacturing Financials

A well-designed manufacturing chart of accounts turns financial data from a basic compliance

requirement into a powerful management tool. With the right structure, you can achieve

accurate product costing, more informed pricing, and clearer insight into operational

inefficiencies.

We bring specialized knowledge of manufacturing accounting to help you build financial systems that support growth. Our team can design a chart of accounts capturing the right detail for your operations while ensuring compliance with accounting standards.

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