Some items are included in the accounts of a manufacturing company, but because they are not related to production costs, they are excluded from cost accounts. This article provides an overview of these items.
1. Items of Appropriation of Profit
- Income tax paid and legal expenses incurred in connection with the assessment of income tax
- Transfer to reserves
- Dividends on shares paid by a company
- Amounts written off (e.g., goodwill, preliminary expenses, underwriting commission, and discount allowed on shares or debentures)
- Bonus payments to employees, if such payments are based on profits
2. Items of Pure Finance
- Interest and dividends received on investments
- Rent received
- Profit or loss on sale of investments, fixed assets, and so on
- Expenses on raising capital
- Cash discount allowed or received
3. Abnormal Items
- Cost of abnormal idle time
- Cost of abnormal wastage of materials
- Exceptional bad debts
- Abnormal savings
- Penalties and fines paid for the infringement of government rules and regulations
Items Excluded From Cost Accounts FAQs
The items excluded from the cost sheet are the items of appropriation of profit, items of pure finance, and abnormal items
Income tax paid and legal expenses
Transfer to reserves is the item of expense that is excluded from cost accounts.
The reasons for excluding certain items from cost accounts include: they are not related to production costs, they are of appropriation of profit, or they are of pure finance.
No, each company has discretion over what to include in their cost accounts. Some items, such as income tax and legal expenses, are commonly excluded because they are not related to production costs. Other items, such as dividends and amount written off, may be included or excluded depending on the company's accounting policies.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.