Key takeaways
What this article covers, in order:
- The chart of accounts for a manufacturer
- The 3 entries a manufacturer gets wrong
- What a manufacturer can claim
- The reports to run every month
- Frequently asked questions
- Where to go next
A finished unit is raw material plus labour plus a share of overhead, and if the software cannot hold a bill of materials it cannot tell you what a unit costs. You end up quoting from last year's cost and discovering the margin after the order ships.
This is the bookkeeping side of that problem: the accounts to set up, the entries that go wrong, and what you can claim. If you are still choosing software, the round-up linked at the end compares the options.
The chart of accounts for a manufacturer
Start from these rather than the default template. The codes are illustrative; the separations are what matter, because each one answers a question you will be asked later.
1200 Raw materials
1250 Work in progress
1300 Finished goods
5000 Direct materials consumed
5100 Direct labour
5200 Manufacturing overhead absorbed
5300 Scrap and reworkThe 3 entries a manufacturer gets wrong
Factory wages
Direct labour belongs in WIP and then in the cost of the unit, not in administrative payroll. Put it in payroll expense and every unit looks cheaper than it is.
A part-finished production run at month end
Value it in WIP with the material and labour actually applied. Leaving it in raw materials overstates stock and understates cost.
Scrap from a bad run
Book it to scrap, not to cost of goods sold. Hiding it in COGS removes the only signal that a line or a supplier is drifting.
What a manufacturer can claim
Deductibility follows the rule in your own jurisdiction, so this is a checklist to take to your accountant rather than an answer. For a manufacturer the cost lines to review first, and the record each one needs, are:
| Cost line | The record to keep |
|---|---|
| Direct materials consumed | The invoice, and the business-use split where the cost is shared |
| Direct labour | The invoice, and the business-use split where the cost is shared |
| Manufacturing overhead absorbed | The invoice, and the business-use split where the cost is shared |
| Scrap and rework | The invoice, and the business-use split where the cost is shared |
Whether each of those is deductible, and how much of it, is a rule your tax authority sets and changes. Keep the record either way; take the question to your accountant with the figures in front of you.
The reports to run every month
- Multi-level bill of materials with costed sub-assemblies — review it monthly, not at year end.
- Work in progress as a real account, moving material and labour into WIP and out to finished goods — review it monthly, not at year end.
- Standard cost versus actual, with the variance visible by job or run — review it monthly, not at year end.
- Overhead absorption on a basis you choose, and recalculable when volume changes — review it monthly, not at year end.
Frequently asked questions
Recommendations for accounting software for manufacturers?
There is no single best one; there is a best one for a shape of business. For a manufacturer, work down the criteria in the section above and stop at the first option that clears all of them — that list is short, usually two or three.
The criteria that eliminate most options fastest are: Multi-level bill of materials with costed sub-assemblies; Work in progress as a real account, moving material and labour into WIP and out to finished goods; Standard cost versus actual, with the variance visible by job or run.
What is the best accounting software for manufacturing?
There is no single best one; there is a best one for a shape of business. For a manufacturer, work down the criteria in the section above and stop at the first option that clears all of them — that list is short, usually two or three.
The criteria that eliminate most options fastest are: Multi-level bill of materials with costed sub-assemblies; Work in progress as a real account, moving material and labour into WIP and out to finished goods; Standard cost versus actual, with the variance visible by job or run.
Give me a list of accounting software for manufacturing that offer the best security?
Ask for evidence rather than adjectives. The things worth checking, in order: an independent audit you can see (SOC 2 Type II or ISO 27001, with the report date), encryption in transit and at rest, enforced multi-factor authentication, role-based permissions fine enough that a bookkeeper cannot export your whole ledger, an immutable audit trail of who changed what, where your data is hosted and under which country's law, and a stated backup and recovery position.
Then ask the question the brochure will not answer: can you see, after the fact, who changed a figure and what it was before? For a manufacturer that audit trail is worth more than any single feature on the security page. A vendor who will send the audit report under NDA is telling you something; one who answers with the words "bank-grade security" is telling you something too.
Is there free accounting software for manufacturing?
There are free tiers, and they are real — but the limit is what matters, not the price. Find the cap before you move your books: how many documents or transactions a month, how many bank accounts, how many users, and whether the free tier includes the one thing you came for. HelloBooks has a free plan; /pricing lists what it covers today.
How much does accounting software for manufacturing cost?
Published prices move, and the figure that matters is the one including the module you actually need — inventory, payroll or multi-currency are often a tier up, so the headline price is rarely the price you pay. Price each shortlisted option at the tier that carries what you actually need, on the vendor's own page, on the day you decide.
How do I switch accounting software without losing my history?
Migrate on a period boundary and bring three things: opening trial balance, open customer and supplier balances, and your chart of accounts. Transaction history can usually stay in the old system as a read-only archive — attempting to re-import years of detail is where most migrations lose a week and a reconciliation.
Where to go next
- HelloBooks for manufacturing
- The manufacturing accounting software round-up
- HelloBooks in the United States
- HelloBooks in the UK
- HelloBooks pricing and what each plan includes
This guide is written for businesses in the US, UK, Canada, Australia, New Zealand and Singapore. Tax treatment differs by country — check the rule for yours before you act on it.
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