century 21 accounting © thomson/south-western lesson 20-1 journalizing manufacturing accounting...
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CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 20-1
Journalizing Manufacturing Accounting Transactions
CENTURY 21 ACCOUNTING © Thomson/South-Western
JOURNALIZING MANUFACTURING ACCOUNTING COSTS
Accounting for a manufacturing business is more complex than accounting for a merchandising business.
To provide financial statements, it must make journal entries to reflect cost transactions in general ledger accounts. Cost data are generally recorded daily to provide up-to-date cost
information for managers.
Most manufacturing costs are recorded for financial reporting purposes when up-to-date account balances are needed to prepare financial statements. End-of-fiscal-period journal entries update the general ledger
manufacturing accounts before financial statements are prepared.
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LESSON 20-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
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LESSON 20-1
1. Record materials purchased.
2. Record materials transferred.
7. Record cost of products sold.
3. Record factory payroll.
4. Close individual manufacturing expense accounts.
5. Record applied overhead.6. Record cost of products completed.
FLOW OF MANUFACTURING COSTS page 585
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CENTURY 21 ACCOUNTING © Thomson/South-Western
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LESSON 20-1
January 31
4. Debit the factory accounts.
5. Credit the three tax withholding accounts.
6. Credit cash for the next payroll.
2. Credit the three tax withholding accounts.
January 15
1. Debit the factory accounts.
3. Credit cash for the next payroll.
JOURNAL ENTRIES TO RECORD FACTORY PAYROLL FOR A MONTH page 586
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Direct Labor is recorded as Work in Process. Indirect Labor is recorded as Factory Overhead.
CENTURY 21 ACCOUNTING © Thomson/South-Western
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LESSON 20-1
RECORDING MATERIALS PURCHASES page 587
A business will record the amount of direct & indirect materials purchased and issued in the general ledger account Materials
Purchases are made on account and are recorded in the Materials Purchases Journal
At the end of a month, the total of the materials purchases journal is posted to Materials and Accounts Payable in the general ledger
CENTURY 21 ACCOUNTING © Thomson/South-Western
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LESSON 20-1
RECORDING MATERIALS REQUISITIONS page 587
A memorandum with monthly summary information of the direct & indirect materials totals is prepared at the end of the month.
After direct materials are issued, the requisition amount is recorded on a cost sheet & the requisition is filed.
At the end of a month, the total value of all direct materials issued to specific jobs must be transferred from Materials to Work In Process
At the end of a month the total value of all indirect materials issued is transferred from Materials to Factory Overhead
CENTURY 21 ACCOUNTING © Thomson/South-Western
Factory Overhead
Jan. 15 Ind. Lab.Jan. 31 Ind. Lab.Jan. 31 Ind. Mat.
$11,774.00$13,276.00$11,447.50
Work In Process
Bal.Jan. 15 Dir. Lab.Jan. 31 Dir. Lab.Jan. 31 Dir. Mat.
$82,579.00$39,245.00$44,255.00$156,477.00
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LESSON 20-1
MATERIALS & LABOR USED IN PRODUCTION page 589
The balance in the Work in Process account, $82,579, is the beginning inventory of Work In Process. The other debits represent the total amounts of direct labor &
direct materials used for all jobs during the month. The debits to Facotry Overhead represent the total amounts of
indirect labor used & indirect materials issued during the month
CENTURY 21 ACCOUNTING © Thomson/South-Western
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LESSON 20-1
JOURNALIZING ACTUAL FACTORY OVERHEAD page 589
Factory overhead includes various indirect factory expenses such as indirect labor, indirect materials, taxes, depreciation, & insurance.
Actual factory overhead expenses are summarized in an account titled Factory Overhead
.
CENTURY 21 ACCOUNTING © Thomson/South-Western
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LESSON 20-1
JOURNALIZING ACTUAL FACTORY OVERHEAD page 589
At the end of each month, other indirect expenses account balances are transferred to the factory overhead account.
The actual factory overhead can then be compared with the estimated amount of factory overhead recorded on the job cost sheets
Date Account TitleDoc. No.
Post. Ref.
Debit Credit
Jan. 31 Factory Overhead M241 30,456.00
Depr. Exp.-Factory Equip 2,500.00
Depr. Exp.-Building 1,300.00
Heat, Light, & Power Exp. 6,158.50
Insurance Exp. – Factory 620.00
Miscellaneous Exp. – Factory 784.40
Payroll Taxes Exp. – Factory 15,414.10
Property Tax Exp. – Factory 1,463.60
Supplies Exp. - Factory 2,215.40
CENTURY 21 ACCOUNTING © Thomson/South-Western
Factory Overhead
Jan. 15 Ind. Lab.Jan. 31 Ind. Lab.Jan. 31 Ind. Mat.Jan. 31 Act. OH(New Bal.)
$11,774.00$13,276.00$11,447.50$30,456.00$66,953.50
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LESSON 20-1
JOURNALIZING ACTUAL FACTORY OVERHEAD page 589
At the end of each month, other indirect expenses account balances are transferred to the factory overhead account.
The actual factory overhead can then be compared with the estimated amount of factory overhead recorded on the job cost sheets
CENTURY 21 ACCOUNTING © Thomson/South-Western
Factory Overhead
Jan. 31 Act. OH. $66,953.50(New Bal. $153.50)
Jan. 31 App. OH $66,800.00
Work In Process
Bal.Jan. 15 Dir. Lab.Jan. 31 Dir. Lab.Jan. 31 Dir. Mat.Jan. 31 App. OH
$82,579.00$39,245.00$44,255.00
$156,477.00$66,800.00
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LESSON 20-1
RECORDING APPLIED OVERHEAD page 589
At the end of each month the business totals the applied factory overhead recorded on all job cost sheets.
The journal entry to record applied factory overhead is shown above
CENTURY 21 ACCOUNTING © Thomson/South-Western
DISPOSINGOF OVERAPPLIED & UNDERAPPLIED FACTORY OVERHEAD
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LESSON 20-1
• The rate used to calculate applied factory overhead is only an estimate
• The factory overhead account may have an ending balance
• The amount by which applied factory overhead is less than actual factory overhead is called underapplied overhead
• The journal entry to close underapplied factory overhead is:
Date Account TitleDoc. No.
Post. Ref.
Debit Credit
Jan. 31 Income Summary M243 153.50
Factory Overhead 153.50
Factory Overhead
Jan. 31 Act. OH. $66,953.50
(New Bal. $153.50)
Jan. 31 App. OH $66,800.00
CENTURY 21 ACCOUNTING © Thomson/South-Western
DISPOSINGOF OVERAPPLIED & UNDERAPPLIED FACTORY OVERHEAD
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LESSON 20-1
• A credit balance in the Factory Overhead account indicates that applied factory overhead is more than actual factory overhead
• The amount by which applied factory overhead is more than actual factory overhead is called overapplied overhead
• An example of a journal entry to close overapplied factory overhead is:
Date Account TitleDoc. No.
Post. Ref.
Debit Credit
Jan. 31 Factory Overhead M243 186.21
Income Summary 186.21
• Two reason for overapplied or underapplied overhead• Actual expenses may be higher or lower than normal, which
requires closer control over expenditures• Factory overhead applied rate may be inaccurate – requires a
revised rate
CENTURY 21 ACCOUNTING © Thomson/South-Western
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LESSON 20-1
RECORDING FINISHED GOODS TRANSACTIONS page 590
The cost of work finished during the month
Work In Process
Bal. $82,579.00
Jan. 15 Dir. Lab. $39,245.00Jan. 31 Dir. Lab. $44,255.00
Jan. 31 Dir. Ma t.$156477.00
Jan. 31 App. OH $66,800.00(New Bal. Jan. 31 )
$109,003.50
Jan. 31 Completed Cost Sheets to Finished Goods $280,352.50
Finished Goods
Bal. $115.140.00Jan. 31 Completed Cost Sheets $280,352.50
The cost of finished goods transferred from the factory to the stockroom
The business totals the cost sheets for all jobs completed during the month
This amount is transferred from Work In Process to Finished Goods
The balance in the finished goods account represents beginning inventory
CENTURY 21 ACCOUNTING © Thomson/South-Western
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LESSON 20-1
RECORDING FINISHED GOODS TRANSACTIONS page 590
This cost of work finished during the month is transferred from Work In Process to Finished Goods
CENTURY 21 ACCOUNTING © Thomson/South-Western
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LESSON 20-1
RECORDING SALES AND COST OF GOODS SOLD page 590
At the end of the month, cost information on all sales invoices is totaled
This number represents the total cost of products sold, not the sales price
This total cost is transferred from the inventory account Finished Goods to Cost of Goods Sold
CENTURY 21 ACCOUNTING © Thomson/South-Western
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LESSON 20-1
TERMS REVIEW
underapplied overhead overapplied overhead
page 592