Cost flow in production – Journal entries

Paper CAF – 3
1 – Integrated system

INTEGRATED BOOKS [GL]

Material
1) Purchase of material Dr. RM inventory
Cr. Cash / Creditor
2) Purchase return to supplier Dr. Cash / Creditors
Cr. RM inventory
3) Issue to production Dr. WIP inventory [Direct material]
Dr. FOH control [Indirect material]
Cr. RM inventory
4) Return from production Dr. RM inventory
Cr. WIP inventory [Direct material]
Cr. FOH control [Indirect material]
5) Material loss in store Dr. FOH control [Normal loss]
Dr. P&L [Abnormal loss]
Cr. RM inventory
Labour
6) Recording payroll Dr. Wages control
Dr. Admin & selling expenses
Cr. Payable to employees
Cr. WHT payable
7) Charging wages to production Dr. WIP inventory [Direct labour]
Dr. FOH control [Indirect labour]
Cr. Wages control
8) Payment of payroll Dr. Payable to employees
Dr. WHT payable
Cr. Bank
Overheads
9) Other actual overheads incurred Dr. FOH control
Cr. Cash / Accumulated depreciation
10) FOH applied to production Dr. WIP inventory
Cr. FOH control
11) Under / over applied FOH Under applied
Dr. Cost of sales
Cr. FOH control
Over applied
Dr. FOH control
Cr. Cost of sales
Goods
12) Goods manufactured Dr. FG inventory
Cr. WIP inventory
13) Goods sold Dr. Cash / Debtor
Cr. Sales

Dr. Cost of sales

Cr. FG inventory

1 | Page Nasir Abbas FCA

Cost flow in production – Journal entries
Paper CAF – 3
2 – Interlocking system

HEAD OFFICE BOOKS [GL] FACTORY BOOKS [FL]

Material
1) Purchase of material Dr. FL control Dr. RM inventory
Cr. Cash / Creditor Cr. GL control
2) Purchase return to Dr. Cash / Creditors Dr. GL control
supplier Cr. FL control Cr. RM inventory
3) Issue to production Dr. WIP inventory [Direct material]
Dr. FOH control [Indirect material]
Cr. RM inventory
4) Return from Dr. RM inventory
production Cr. WIP inventory [Direct material]
Cr. FOH control [Indirect material]
5) Material loss in store Dr. FOH control [Normal loss]
Dr. P&L [Abnormal loss] Dr. GL control [Abnormal loss]
Cr. FL control Cr. RM inventory
Labour
6) Recording payroll Dr. FL control Dr. Wages control
Dr. Admin & selling expenses Cr. GL control
Cr. Payable to employees
Cr. WHT payable
7) Charging wages to Dr. WIP inventory [Direct labour]
production Dr. FOH control [Indirect labour]
Cr. Wages control
8) Payment of payroll Dr. Payable to employees
Dr. WHT payable
Cr. Bank
Overheads
9) Other actual Dr. FL control Dr. FOH control
overheads incurred Cr. Cash / Acc. Depreciation Cr. GL control
10) FOH applied to Dr. WIP inventory
production Cr. FOH control
11) Under / over applied Under applied Under applied
FOH Dr. Cost of sales Dr. GL control
Cr. FL control Cr. FOH control
Over applied Over applied
Dr. FL control Dr. FOH control
Cr. Cost of sales Cr. GL control
Goods
12) Goods manufactured Dr. FG inventory
Cr. WIP inventory
13) Goods sold Dr. Cash / Debtor
Cr. Sales

Dr. Cost of sales Dr. GL control

Cr. FL control Cr. FG inventory

2 | Page Nasir Abbas FCA

Cost flow in production – Journal entries
Paper CAF – 3
3 – Fully interlocking system

FACTORY BOOKS [Cost Ledger]

Material
1) Purchase of material Dr. RM inventory
Cr. GL adjustment
2) Purchase return to supplier Dr. GL adjustment
Cr. RM inventory
3) Issue to production Dr. WIP inventory [Direct material]
Dr. FOH control [Indirect material]
Cr. RM inventory
4) Return from production Dr. RM inventory
Cr. WIP inventory [Direct material]
Cr. FOH control [Indirect material]
5) Material loss in store Dr. FOH control [Normal loss]
Dr. Costing P&L [Abnormal loss]
Cr. RM inventory
Labour
6) Recording payroll Dr. Wages control
Cr. GL adjustment
7) Charging wages to production Dr. WIP inventory [Direct labour]
Dr. FOH control [Indirect labour]
Cr. Wages control
8) Payment of payroll

Overheads
9) Other actual overheads incurred Dr. FOH control
Cr. GL adjustment
10) FOH applied to production Dr. WIP inventory
Cr. FOH control
11) Notional rent recorded Dr. FOH control
Cr. Notional rent
Admin & selling costs
12) Actual admin & selling overheads incurred Dr. Admin & selling OH control
Cr. GL adjustment
13) Admin & selling OH applied Dr. Costing P&L
Cr. Admin & selling OH control
Goods
14) Goods manufactured Dr. FG inventory
Cr. WIP inventory
15) Goods sold Dr. GL adjustment
Cr. Sales

Dr. Cost of sales

Cr. FG inventory
Closing entries for costing P&L
16) Under / over applied FOH Under applied
Dr. Cost of sales
Cr. FOH control
Over applied
Dr. FOH control
Cr. Cost of sales

3 | Page Nasir Abbas FCA

Cost flow in production – Journal entries
Paper CAF – 3

17) Notional rent closed to costing P&L Dr. Notional rent

Cr. Costing P&L
18) Under / over applied Admin & selling OH Under applied
Dr. Costing P&L
Cr. Admin & selling OH control
Over applied
Dr. Admin & selling OH control
Cr. Costing P&L
19) Transfer of sales Dr. Sales
Cr. Costing P&L
20) Transfer of cost of sales Dr. Costing P&L
Cr. Cost of sales
21) Net profit Dr. Costing P&L
Cr. GL adjustment

Reconciliation between costing profit and accounting profit:

Rs.
Costing profit X
Less: HO specific expenses (X)
Add: HO specific incomes X
Add: Costing depreciation X
Less: Accounting depreciation (X)
Add: Costing opening stocks X
Less: Costing closing stocks (X)
Less: Accounting opening stocks (X)
Add: Accounting closing stocks X
Add: Notional rent X
Add: Over applied FOH / Admin & selling OH X
Less: Under applied FOH / Admin & selling OH (X)
Accounting profit X

Notes:
Include “notional rent” and “over / under applied” ONLY if above adjustment entries 16, 17 and 18 have not been
passed.

4 | Page Nasir Abbas FCA