Industry
Accounting for manufacturers means following the material
A manufacturer's true costs are hidden in what happens between buying material and selling a product. If you cannot trace that path, you cannot know your margin. Your stock figure also directly changes your profit.
Where material goes, and what each stage needs
| Stage | Records to keep | The usual gap |
|---|---|---|
| Buying raw material | Purchase bill, goods receipt note, freight | Bills are entered but receipt is not checked against quantity |
| Issuing to production | Issue slips or a store register | Material leaves the store with no record |
| Work in progress | Quantities in process at month end | Ignored until year end, so monthly profit misleads |
| Scrap and wastage | Quantities, and sale of scrap | Scrap sold for cash and never recorded |
| Job work | Challans for goods sent and received | Goods stay out longer than allowed |
| Finished goods | Production and dispatch records | Stock in the books does not match the godown |
| Factory costs | Wages, power, repairs and machinery records | Everything goes into one "factory expenses" head |
Why the stock figure matters so much
Profit depends on closing stock. If the year-end stock is overstated, profit rises on paper. If understated, profit falls. Neither reflects what really happened, and a bank or tax officer may ask questions.
Ask Deepak Mittal how raw material, work in progress and finished goods are being valued, and whether the method follows the applicable accounting standard. Keep the method consistent, and keep the count sheets.
Job work and GST
If you send goods to a job worker, you are the principal, and section 143 of the CGST Act puts specific duties on you:
- Keeping proper accounts for what you send out. That responsibility stays with you
- Getting inputs back, or supplying them from the job worker's place, within one year
- Doing the same for capital goods within three years. Moulds, dies, jigs, fixtures and tools are outside this limit
- Goods not back in time are treated as supplied by you on the day they were sent out. The Commissioner can extend the period for sufficient cause
Goods go to a job worker under a delivery challan, and the principal reports them in Form GST ITC-04 (rule 45). Since 1 October 2021 it is filed every six months if your turnover in the previous year exceeded ₹5 crore, and once a year otherwise. Ask Deepak Mittal about credit and interest if a deadline is missed.
What monthly reporting should show
- Material used compared with production, for your main products
- Gross margin after material and direct labour
- Stock at each stage, with slow-moving items
- Material at job workers, and how long it has been out
- Wages and overtime compared with output
You do not need a costing system on day one. Begin with your top three products and one simple sum: what went in, what came out, and what it sold for.
Staff and compliance
Factory staff add payroll with attendance and overtime records, and PF and ESI where they apply. Payments to contractors may bring TDS. Machinery needs a fixed asset register so that depreciation can be worked out. Larger companies may have cost record or audit requirements, so ask whether they apply to yours.
Questions to ask Deepak Mittal before work starts
- Have you worked with businesses that convert materials?
- Will you record material issues and production, or just purchases and sales?
- How will you value stock and work in progress each month?
- How do you track material at job workers?
- Can you set up stock items and units in my software?
Where units are based
For more on Delhi's estates, see the industrial and manufacturing hub. The accounting workflow described here does not depend on your location.
Sources checked, November 2026
- CGST Act as amended to 1 January 2022 (opens in a new tab), section 143 (read at source; check for later changes)
- Notification 35/2021-Central Tax (opens in a new tab), amending rule 45(3) (read at source, 10 November 2026)
- Accounting standard on inventories and cost audit rules were not read for this page; discuss them with Deepak Mittal for your case
Want to trace your material, stock and margin?
Tell us what you make, your approximate staff count, whether you use job workers, and your software.
