LESSON 20-1
Journalizing Manufacturing
Accounting Transactions
CENTURY 21 ACCOUNTING © Thomson/South-Western
2
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.
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 20-1
3
FLOW OF MANUFACTURING COSTS
page 585
1. Record materials
purchased.
1
2
6
2
3
7
2. Record materials
transferred.
3. Record factory payroll.
5
3
4
4. Close individual
manufacturing expense
accounts.
5. Record applied overhead.
6. Record cost of products
completed.
7. Record cost of products
sold.
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 20-1
4
JOURNAL ENTRIES TO RECORD
FACTORY PAYROLL FOR A MONTH
page 586
Direct Labor is recorded as Work in Process. Indirect Labor is recorded
as Factory Overhead.
1
2
3
5
6
4
January 15
January 31
1. Debit the factory accounts.
4. Debit the factory accounts.
2. Credit the three tax withholding accounts. 5. Credit the three tax withholding accounts.
3. Credit cash for the next payroll.
6. Credit cash for the next payroll.
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 20-1
5
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
LESSON 20-1
6
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
LESSON 20-1
7
MATERIALS & LABOR USED IN
PRODUCTION
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
page 589
Factory Overhead
Jan. 15 Ind. Lab.
Jan. 31 Ind. Lab.
Jan. 31 Ind. Mat.
$11,774.00
$13,276.00
$11,447.50
 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
LESSON 20-1
8
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
LESSON 20-1
9
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
Jan. 31
Account Title
Factory Overhead
Doc.
No.
M241
Post.
Ref.
Debit
Credit
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
LESSON 20-1
10
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
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
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 20-1
11
RECORDING APPLIED OVERHEAD
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
page 589
Factory Overhead
Jan. 31 Act. OH. $66,953.50
(New Bal. $153.50)
Jan. 31 App. OH $66,800.00
 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
LESSON 20-1
12
DISPOSINGOF OVERAPPLIED &
UNDERAPPLIED FACTORY OVERHEAD
• The rate used to calculate applied factory overhead is only an
estimate
• The factory overhead account may have an ending balance
Factory Overhead
Jan. 31 Act. OH.
$66,953.50
(New Bal. $153.50)
Jan. 31 App. OH
$66,800.00
• 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
Jan. 31
Account Title
Income Summary
Doc.
No.
M243
Factory Overhead
CENTURY 21 ACCOUNTING © Thomson/South-Western
Post.
Ref.
Debit
Credit
153.50
153.50
LESSON 20-1
13
DISPOSINGOF OVERAPPLIED &
UNDERAPPLIED FACTORY OVERHEAD
• 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
Doc.
Post.
Account Title
Debit
Credit
No.
Jan. 31
Factory Overhead
M243
Ref.
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
LESSON 20-1
14
RECORDING FINISHED GOODS
TRANSACTIONS
page 590
Finished Goods
Bal.
$115.140.00
Jan. 31 Completed Cost
Sheets
$280,352.50
 The cost of work
finished during the
month
Work In Process
Bal.
Jan. 15 Dir. Lab.
Jan. 31 Dir. Lab.
Jan. 31 Dir. Ma
Jan. 31 App. OH
(New Bal. Jan. 31 )
 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
$82,579.00
$39,245.00
$44,255.00
t.$156477.00
$66,800.00
$109,003.50
Jan. 31 Completed Cost
Sheets to Finished Goods
$280,352.50
 The cost of finished
goods transferred from
the factory to the
stockroom
LESSON 20-1
15
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
LESSON 20-1
16
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
LESSON 20-1
17
TERMS REVIEW
page 592
 underapplied overhead
 overapplied overhead
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LESSON 20-1