Financial Statements
Discuss how you might expect the financial statements reported by a Manufacturing company to differ from that reported by a financial firm. You should make sure to carefully consider differences in assets and liabilities.
Financial statements may differ depending on the nature of the business. Manufacturing company and the financial firm are good examples of the different businesses which may vary in their financial statements. From the financial statements of Ausgroup, which is a financial firm, and Wesfarmers, which is a manufacturing firm, you can point out many differences in their assets and liabilities. The commonly known difference between the financial statements of the manufacturing firm and the financial firm is that in the manufacturing firm, there are inventories. The manufacturing company deals with the goods which are recorded as the inventory or the stock of the business[1]. From the manufacturing company, there is the “cost of goods sold”. At the same time, the financial firms do not have such records in their financial statements because they do not carry the inventory[2]. In a manufacturing firm, the cost of goods sold is treated as an expense account that means the cost of producing the products and shipping them to potential customers for sale.
When you closely look at the financial statements of Ausgroup and the Wesfarmers, you find out that they all begin with the revenue and then deduct the operating expenses. In this case, the operating expenses for the manufacturing firm are the cost of goods sold, which includes the cost of raw materials and labor used to produce the products. On the other end, the financial company has its operating expense as the money borrowed[3]. After deducting the operating expenses, both manufacturing and financial firms come to get the gross profit for a manufacturing firm and the net interest margin for the financial institution. After getting the gross profit/net interest margin, the companies go ahead to deduct other expenses such as general administrative, sales and marketing, and the additional expenses. The balance after deducting is referred to as the operating profit in both cases. Finally, things such as the expense in interest, and the paid-in taxes are added in the financial firm’s statements to get the net income.
For instance, in the Wesfarmers’ financial statement, there is an inventory account while in Ausgroup there isn’t[4]. This means that the main difference between the financial statements of the manufacturing firm and financial companies is only that the manufacturing firm operates with the inventory or the stock while the other one operates with the money they lend to the borrowers[5]. The operating expenses between the manufacturing and financial firm may differ since, in most cases in the manufacturing firm, there is the cost of acquiring the goods and the labor expenses. In contrast, in the financial firms, the operating expenses are the cost of giving out the loans to the borrowers. In summary, the financial statement in the different industries, especially for the service and manufacturing industries, differs because of the nature of the operations.
Bibliography
Minnis, Michael, and Andrew Sutherland. “Financial statements as monitoring mechanisms: Evidence from small commercial loans.” Journal of Accounting Research 55, no. 1 (2017): 197-233.
Umobong, Asian A., and Dike Akani. “IFRS adoption and accounting quality of quoted manufacturing firms in Nigeria: A cross-sectional study of brewery and cement manufacturing firms.” International Journal of Business and Management Review 3, no. 6 (2015): 61-77.
AusGroup Limited | Annual Report (2018)
Wesfarmers Annual Report (2018)
[1] Wesfarmers Annual Report (2018)
[2] Minnis, Michael, and Andrew Sutherland. “Financial statements as monitoring mechanisms: Evidence from small commercial loans.” Journal of Accounting Research 55, no. 1 (2017): 197-233.
[3] from Umobong, Asian A., and Dike Akani. “IFRS adoption and accounting quality of quoted manufacturing firms in Nigeria: A cross-sectional study of brewery and cement manufacturing firms.” International Journal of Business and Management Review 3, no. 6 (2015): 61-77.
[4] AusGroup Limited | Annual Report (2018)
[5] Umobong, Asian A., and Dike Akani. “IFRS adoption and accounting quality of quoted manufacturing firms in Nigeria: A cross-sectional study of brewery and cement manufacturing firms.” International Journal of Business and Management Review 3, no. 6 (2015): 61-77.