Finishing the Manufacturing Order and Its Resulting Stock Transactions and Journal Entries
Although the Bill of Materials (BOM) serves as the basis for the information and costs on which a manufacturing order is built, the BOM is just a reference list and does not directly generate stock transactions or journal entries. Instead, stock transactions and journal entries are generated through manufacturing orders.
These transactions and entries are divided into:
- Raw material entries:
These are recorded when “receiving materials” for the manufacturing order.
- Finishing the Manufacturing Order:
The broader and more significant transactions and entries are only generated after “Finishing the Manufacturing Order.”
In this guide, we will explore how to finish a manufacturing order, its impact on your inventory of raw materials and scrap items, as well as the journal entries generated upon finishing the manufacturing order.
Finishing the manufacturing order and adding the resulting products to warehouses
Click on “Manufacturing Orders” under the “Manufacturing” dropdown in the main menu, then select the manufacturing order you want to finish and click on the “Finish Manufacturing Order” button.
Finishing a manufacturing order generates two inbound stock requisitions:
- Adding the main product: The specified quantity in the manufacturing order is added to the warehouse you select.
- Adding scrap items: The scrap items resulting from the manufacturing order are added to the designated warehouse (this can be the same warehouse as the final product or a different one).
After selecting the warehouses and setting the date, click on the “Confirm” button.
After finishing the manufacturing order, a stock requisition is automatically created for adding the specified quantity of the final product from the manufacturing order to the warehouse you selected during the finishing process.
To view the details of the stock requisition, which reflects adding the final product to your warehouses Click on “Manage requisitions” under the “Inventory” dropdown in the main menu, then select the stock requisition related to adding the final product to the warehouse.
By clicking on “Products & Services” under the “Inventory” dropdown in the main menu and then selecting the final product you have manufactured, you can view the quantity of the final product added to inventory. You can also see the quantity of the product in each of your warehouses, along with other product details.
After finishing the manufacturing order, a stock requisition is automatically created for adding the specified quantity of scrap items from the manufacturing order to the warehouse you selected.
To view the details of the stock requisition for adding the waste materials to your warehouse Click on “Manage requisitions” under the “Inventory” dropdown in the main menu. Then select the stock requisition related to adding the scrap item to the warehouse.
By clicking on “Products and Services” under the “Inventory” dropdown in the main menu and selecting the scrap item resulting from the manufacturing process, you can view the quantity of the scrap item added to inventory. You can also see the quantity of the scrap item in each of your warehouses, along with other product details.
Manufacturing Entries
Finishing the manufacturing order is the primary action that generates most of the journal entries related to the manufacturing order, except for those entries related to raw materials, as these are recorded during materials receiving, as “receiving materials” is considered a “stock requisition” that results in actual stock transactions and journal entries.
After undoing the manufacturing order completion, the journal entries generated by finishing the manufacturing order are automatically deleted. However, you cannot delete any of these automated entries manually while maintaining the manufacturing order status as “Finished.”.
For more information about receiving raw materials for a manufacturing order and the journal entries resulting from them, refer to this guide.
After finishing a manufacturing order, navigate to “Journal Entries” under the “Accounting” dropdown in the main menu. There, you will find the journal entries automatically generated as a result of finishing the manufacturing order.
We will go over each journal entry made after finishing the manufacturing order in the following section.
Manufacturing Order Main Product Inbound Requisition Entry
You will find the journal entry for adding the Main Product to the specified warehouse has been automatically created with the same date as finishing the manufacturing order. Its description is “Manufacturing Order Main Product Inbound Requisition”.
- The inventory account will be the same as the warehouse account that we specified for the main product upon finishing the manufacturing order. In the following example, it appears as “Primary Warehouse.”.
- The main product account will be the same as the account selected when adding the manufacturing order. In the following example, it appears as “Final Product Expenses,” which is an account we created in the chart of accounts and selected in the manufacturing order to be the account for this product.
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You can create any account that suits your accounting setup and structure, then select it when creating the manufacturing order, or choose one of the default accounts in the chart of accounts. The selected account will then appear in the entry instead of the “Final Product Expenses.”.
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Manufacturing Scrap Item Product Inbound Requisition Entry
You will find the journal entry for adding the scrapped items to the specified warehouse has been automatically created with the same date as finishing the manufacturing order. Its description is “Inbound Requisition—Manufacturing Order Scrap Items Inbound.”.
- The entry for adding scrapped materials includes the accounting transactions for all scrapped materials generated from this manufacturing order.
- The inventory account (debit) will be the same as the warehouse account that we specified for the scrapped materials upon finishing the manufacturing order. In the following example, it appears as “1.”.
- The scrapped items account will be the same as the account selected when adding the manufacturing order. In the following example, it appears as “Final Product Expenses,” which is an account we created in the chart of accounts and selected in the manufacturing order to be the account for both the main product and the scrapped items related to this manufacturing order.
- You can create any account that suits your accounting setup and structure, then select it when creating the manufacturing order, or choose one of the default accounts in the chart of accounts. The selected account will then appear in the entry instead of the “Final Product Expenses.”.
Expenses Entry
You will find the journal entry for the total expenses of the manufacturing order—excluding raw material costs—automatically created with the same date as finishing the manufacturing order. Its description will be “Manufacturing Order Finished + Manufacturing Order Number.”.
This expense entry includes expenses that have been added as direct or indirect costs, as well as all operating costs such as salaries, assets used in manufacturing, and the expenses of the operation process itself.
- The expense account will be the same account that you specified for this expense when adding it in the manufacturing order, bill of materials, or workstation.
- The final product account will be the same account that we selected when adding the manufacturing order information. In the following example, it appears as the “Final Product Expenses,” which is an account we created in the chart of accounts and selected in the manufacturing order to be the account for this product.
- You can create any account that suits your accounting setup and structure, then select it when creating the manufacturing order, or choose one of the default accounts in the chart of accounts. The selected account will then appear in the entry instead of the “Final Product Expenses.”.
Depreciation Entry
The depreciation entry generated from the manufacturing order is automatically created with the same date as the manufacturing order finishing date. Its description is set as “Depreciation Expense.”
The depreciation entry includes the depreciation expense resulting from the assets added to the workstations within the manufacturing order. The depreciation amount increases as the operating time increases.
The entry is as follows:
Dr. Depreciation Expense
Cr. Accumulated Depreciation
For more details on depreciation expenses resulting from using workstation machines linked to the manufacturing order, refer to this section in the Workstations Guide.