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    General Accounting Procedures

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    Jake Borinaga
    This document outlines the general accounting procedures for materials, labor, and manufacturing overhead. It discusses how to account for the purchase and issuance of direct and indirect materials, the incurrence of direct and indirect labor costs, and how to track actual and applied manufacturing overhead using two accounts - the manufacturing overhead control account and the manufacturing overhead applied account. It provides an illustration of accounting entries for a company that purchases materials, incurs labor costs, applies overhead to production, and adjusts for any over- or under-applied overhead.

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    General Accounting Procedures

    Uploaded by

    Jake Borinaga
    18 views4 pages
    This document outlines the general accounting procedures for materials, labor, and manufacturing overhead. It discusses how to account for the purchase and issuance of direct and indirect materials, the incurrence of direct and indirect labor costs, and how to track actual and applied manufacturing overhead using two accounts - the manufacturing overhead control account and the manufacturing overhead applied account. It provides an illustration of accounting entries for a company that purchases materials, incurs labor costs, applies overhead to production, and adjusts for any over- or under-applied overhead.

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    This document outlines the general accounting procedures for materials, labor, and manufacturing overhead. It discusses how to account for the purchase and issuance of direct and indirect materials, the incurrence of direct and indirect labor costs, and how to track actual and applied manufacturing overhead using two accounts - the manufacturing overhead control account and the manufacturing overhead applied account. It provides an illustration of accounting entries for a company that purchases materials, incurs labor costs, applies overhead to production, and adjusts for any over- or under-applied overhead.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    18 views4 pages

    General Accounting Procedures

    Uploaded by

    Jake Borinaga
    This document outlines the general accounting procedures for materials, labor, and manufacturing overhead. It discusses how to account for the purchase and issuance of direct and indirect materials, the incurrence of direct and indirect labor costs, and how to track actual and applied manufacturing overhead using two accounts - the manufacturing overhead control account and the manufacturing overhead applied account. It provides an illustration of accounting entries for a company that purchases materials, incurs labor costs, applies overhead to production, and adjusts for any over- or under-applied overhead.

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    AE 22: Cost Accounting & Control

    General Accounting Procedures for Materials, Labor and Manufacturing Overhead

    ACCOUNTING FOR MATERIALS

    Purchase of Materials and Supplies

    Materials xxxx
    Account Payable xxxx

    Issuance of Direct Materials

    Work in Process xxxx


    Materials xxxx

    Issuance of Indirect Materials

    MOH xxxx
    Materials xxxx

    ACCOUNTING FOR LABOR

    Incurrence of Direct Labor

    Payroll xxxx
    Accrued Payroll xxxx

    Incurrence of Indirect Labor

    MOH xxxx
    Accrued Payroll xxxx
    ACCOUNTING FOR MANUFACTURING OVERHEAD

    Two accounts used:

    a. Manufacturing Overhead – Control

    • accumulates the actual overhead incurred

    b. Manufacturing Overhead – Applied

    • accumulates the estimated overhead applied to production


    • a predetermined rate is used in computing the applied amount using any of
    the following as a base:
    1. units of production
    2. direct material cost
    3. direct labor hours
    4. direct labor cost
    5. machine hours
    • used even if there is actual manufacturing overhead since some of the
    actual overhead will only be available at the end of the month and overhead
    is already needed for costing when production is completed which can
    happen during the month

    i. Overapplied Overhead
    Applied MOH > Actual MOH

    ii. Underapplied Overhead

    Actual MOH > Applied MOH

    • If the over/under application of overhead is adjusted by the end of the


    month, it will be charged against Under/overapplied overhead.

    • If the over/under application of overhead is adjusted by the end of the year,


    it will be charged against Cost of Goods Sold.
    ILLUSTRATION

    ABC Company has the following balances as of January 1, 2022.

    Materials Php 4,900


    Work in Process 4,600
    Finished Goods 6,000

    Purchased Php 7,000 of direct materials and Php 1,000 of indirect materials.

    Materials 8,000
    Accounts Payable 8,000

    The purchased materials were put into process.

    Work in Process 7,000


    MOH – Control 1,000
    Materials 8,000

    Payroll for the month amounted to Php 10,000. Php 7,000 for direct labor and Php 3,000 for indirect
    labor.

    Payroll 10,000
    Accrued Payroll 10,000

    Work in Process 7,000


    MOH – Control 3,000
    Payroll 10,000

    Electricity is applied to the production at 60% of direct labor.

    Work in Process 4,200


    MOH – Applied 4,200

    By the end of the month, actual electricity consumed amounted to Php 4,000. (Overapplication)

    MOH – Control 4,000


    Utilities Expense 4,000

    MOH – Applied 4,200


    MOH – Control 4,000
    Under/overapplied MOH 200
    If the adjustment is made by the end of the year.

    MOH – Applied 4,200


    MOH – Control 4,000
    Cost of Goods Sold 200

    Alternative Scenario: By the end of the month, actual electricity consumed amounted to Php 4,500.
    (Underapplication)

    MOH – Control 4,500


    Utilities Expense 4,500

    MOH – Applied 4,200


    Under/overapplied MOH 300
    MOH – Control 4,500

    If the adjustment is made by the end of the year.

    MOH – Applied 4,200


    Cost of Goods Sold 300
    MOH – Control 4,500

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