An accountant - Problems in the accounting world

1. (1) Should bank interest be included in the production list?

Teacher..

I am an assistant accountant. There is an accountant above me. The business we have to do accounting is a manufacturing business. Our business has taken out a lot of loans from the bank to build a factory and buy machinery, so we have to pay interest to the bank every month.

I classified bank interest as a finance expense and added it to the profit and loss account under administrative expenses. My accountant above me said that I should include it in the production cost.

I understand that only factory service costs should be included in the production cost. Is it correct to include interest on bank loans in factory service costs?

Not fragrant

(Soap factory)

If the interest on the bank loan is added to the cost of production, the cost of one unit of factory output (2) will increase and the value of the remaining goods will increase. The purpose of drawing up a production budget is to know how much it is worth if a product is produced and sold, what is the initial production cost, is the price of the product I produce more or less than other products in the market, etc., so that we can determine whether or not to carry out the production process.

By including bank interest in the cost of production, you can immediately see how much the product you produce is worth, and you can make more informed decisions about managing your business. Some people do not take out a bank loan, but from a management perspective, they include the current market price of their investment and the interest they should earn and add it to the cost of production.

This is correct because accounting theory also considers the management of the business. Therefore, in this case, it is not wrong to include bank interest in production.

Parentheses

Following this answer, we present the discussions of the accountants who participated in this discussion and the re-examination of one accountant, which we believe will be beneficial to readers.

A list lover's discussion

I have been reading Account Care Journal since it was first published, and I am happy to read it as a rare journal about accounting. My friends who are accountants also touched the publication of an accounting journal. As for me, the sections on the topics of the great teachers and the rare articles on corporate governance by U Maw Than are my favorite sections. My favorite section is the Q&A section. I really like it because it is a section where future accountants can ask questions. However, after reading the Q&A section in Volume (1), Issue (1), something came to my mind. .....The question of Ma Hmwe Hmwe from the city soap factory, sir.

Ma Hmwe Hmwe said that the Chief Accountant above her in their office did not seem to understand that bank interest was included in the factory service cost when drawing up the production invoice, so she asked the teacher, not wanting to be too harsh on the Chief, as she was an assistant. It seems that she asked the teacher because she did not clearly understand that bank interest was included in the factory service cost. The teacher wrote this in response to this.

By including bank interest in the cost of production, you can immediately see how much the product you produce is worth, making it easier to make decisions about managing your business.

So, in this case, it can be said that it is not wrong to include bank interest in production.

I agree with Ma Hmu Hmu. I don't understand how bank interest is included in the factory service fee. It is unacceptable.

I don't feel like writing like this, sir. I have never seen you. I respect you both for your knowledge and your kindness. I understand that having someone like you in the Account Care Journal can be very beneficial for accountants. I must admit that I am not going to insult you in this matter, sir.

The cost of goods sold, as I understand it, is a calculation of the unit cost of a product or the total cost of production in a manufacturing industry. Every entrepreneur wants to know whether the value of a product they produce is low or high compared to other products in the market. If the price of the product they produce is higher than the market price, who will bother to produce it? They just buy it in the market where it is easy.

Another thing that every accountant understands in the production list is why prime cost and factory overhead are included in the production value. What types of costs does this production have? Which costs are essential and most important? What service costs can be incurred if this type of production is carried out? These are presented so that accountants can know just by looking at them, and investors in the production industry can understand just by looking at the list.

In other words, we need to draw a Manufacturing A/C to highlight all the costs incurred in the production section.

Sir...

Bank interest is the cost of borrowing money from a bank because you need it. Every accountant understands that it has nothing to do with manufacturing. In other words, it can be called a financial expense.

I realized that the true cost of production can only be understood in terms of the unit cost of a product and the total production cost that I mentioned earlier, if bank interest is not included in the cost of production.

You, the teacher, the accountant...

I am writing this not because I do not respect the teacher's honor and dignity as a teacher. Nor do I want to make excuses for the teacher by being a genius. But I wonder if you have any other answers for students and accountants who are interested in accounting.

Maung Kyauktaing's (Watara) discussion

Editor...

When I read an open letter from an accounting enthusiast to an accounting professional in the Reader's Opinion section of Account Care Journal, Volume 1, Issue 5, I wanted to discuss the issue, so I'd like to ask you to allow me to discuss it.

The first thing I want to discuss is the nature of the accounting under which interest on bank loans should be recorded. As the name suggests, interest on bank loans is an expense incurred because the bank has borrowed money. In its basic sense, interest on bank loans is purely a financial expense. I agree with the accounting lover who said Financial Expense. There is no objection to this.

The point I want to discuss is the interest on bank loans. The most obvious answer is that interest is paid because you have taken a loan from the bank. It is easy to say that you have taken a loan from the bank because you do not have enough funds. There can be many reasons for the lack of funds. In this case, is the bank loan taken because you really do not have enough funds for the production business, or is it because you are expanding your business to other businesses?

It remains to be seen whether a bank loan was obtained to cover the costs of the operations. This issue is not clearly stated.

In every investment case, investors usually calculate the interest they will receive at a reasonable interest rate when considering the return on investment. When considering the cost of production for a manufacturing business, the amount of money actually needed and spent for that production is the capital required for the business. The interest earned on that actually needed capital is an essential service cost for every manufacturing business.

As a list lover said, “The cost of goods sold, as I understand it, is used to determine the unit cost of a product or the total cost of production in a manufacturing business. Every entrepreneur wants to know whether the value of a product they produce is low or high compared to other products in the market.” This statement clearly shows that they accept the fact that they are compared to other products in the market.

When comparing your product with the products of others, it is also important to consider the return on investment. In today's world, if a product produced with little capital is of the same quality as a product produced with a lot of capital, the one who invested more capital will lose.

For example, if a manufacturer uses a machine that costs 800,000 won to produce a product that costs 180,000 won and sells it, the manufacturer should consider that the 800,000 won manufacturer can make more profit in a shorter period of time.

Therefore, the point I want to discuss is that when considering the efficiency of a manufacturing business, the amount of capital invested is also important, so I want to determine whether the true value is to be determined by considering the capital and the interest earned on the capital.

In this case, the original issue was whether or not to include bank interest in the factory service costs in the production cost statement. The answer I prefer is that if this bank loan is indeed an essential amount of money for this production, it is in other words similar in nature to investment. From the perspective of paying a reasonable interest on investment, I would like to propose that only by including interest on investment does the true value of the product be reflected, and therefore from a financial perspective, it should be included.

However, if the capital expenditure is not an essential part of this manufacturing business, but is also a matter of borrowing for other purposes, including this business, then I would like to propose that it should be shown as a financial expense rather than included in the factory operating expenses. Thank you for allowing me to participate in the discussion.