Manufacturing Business:

Cost Accounting
-Is a specialized field of accounting, emphasis the determination and
control of cost.
- Is concerned primarily with the costs of manufacturing processes and
manufactured products.
- Cost determination, known as product costing, deals with the measuring the
resources used to complete an activity or unit of output.

Financial accounting
- Concentrates to the preparation of Financial Statement.
Managerial Accounting
- Internal reports
- Concentrates to the cost reports; budgets, forecasts, and reports

Cost Terminologies/Classification
Manufacturing cost:
- Other term Product cost
- Why? Because initially the direct materials, direct labor, manufacturing
overhead is recorded as asset in the form of inventory.
Direct materials
- raw materials directly traceable to the product.
- Raw materials that become an integral part of the product and can be
conveniently traced. (Radio installed in automobile)

Direct labors
 - labor cost directly traceable to the product (salary of workers
directly involve in manufacturing process)
- Labor costs that can be easily traced to individual units of products.
- Individuals directly involved in manufacturing process.

Manufacturing overhead:
- All manufacturing cost that is not involve in direct materials and
direct labor.
- Cost that cannot be traced directly to specific units produced.
- Example; Indirect materials and Indirect labor.

Indirect materials
– not traceable
- Materials used to support the production process.
- Example; Lubricants and cleaning supplies used in the automobile assembly
plant.
Indirect labor
- Wages paid to employees who are not directly involved in the production
work.
– Example; salary of maintenance, janitor, and supervisor.

Non-manufacturing cost or period cost (Directly expense hindi na ina-asset

as incurred)
Selling expense
- Cost necessary to secure the order and deliver the product.
- Any cost of bringing finished goods from the factory to the whole-seller is
selling expense.
-Example; the delivery fee paid by the seller is selling expense.
General and admin expense
- All executive, organizational, and clerical costs.
- Office of the president, board room, accounting department, HR, and legal
department. Salaries of the abovementioned is in general and admin expense.

Note: Factory supplies if consumed is = manufacturing overhead.

Journal entry:
MOH XXX
Factory supplies XXX

Manufacturing overhead:
 - All manufacturing cost that is not involve in direct materials and direct
labor.
- Cost that cannot be traced directly to specific units produced.
- Example; Indirect materials and Indirect labor.

Indirect materials
– not traceable
- Materials used to support the production process.
- Example; Lubricants and cleaning supplies used in the automobile assembly
plant.
Indirect labor
- Wages paid to employees who are not directly involved in the production
work.
– Example; salary of maintenance, janitor, and supervisor.

Non-manufacturing cost or period cost (Directly expense hindi na ina-asset

as incurred)
Selling expense
- Cost necessary to secure the order and deliver the product.
- Any cost of bringing finished goods from the factory to the whole-seller is
selling expense.
-Example; the delivery fee paid by the seller is selling expense.
General and admin expense
- All executive, organizational, and clerical costs.

Classification od Costs:
 Manufacturing costs are often classified as follows

Direct Direct Manufacturing

Material Overhead
Labor

Prime Conversion
Cost Cost
Comparing Merchandising and Manufacturing Companies

MERCHANDISERS MANUFACTURING
- Buy finished goods. - Buy raw materials.
- Selling Finish Goods - Produce and sell
Finished Goods
Balance Sheet

MERCHANDISERS MANUFACTURER
Current Assets
Current Assets
- Cash
- Cash - Receivables
Journal Entries:
- Receivables - Inventories:
Cost Flow:
- Merchandise Raw Materials (Materials waiting to be processed.)
Inventory
Journal Entries Work in Process (Partially complete products.
Some materials, labor, or overhead has been added)
Finished Goods (Completed products awaiting sale)
 Purchase of raw material
Raw material inventory xx Raw Materials
Accounts payable xx Dr Cr
Purchased
XXX
  raw
Note: The account used for Returns and discounts is Purchase of
material (Default method for inventory is Perpetual Inventory System)

Issuance to production
Work in process inventory xx
Raw materials xx

Raw
Materials Issuance to production
Dr Cr DR Cr
Purchase
d XXX XXX
Issuance to
  XXX Production  
Incurrence of Direct Labor
Work in process inventory xx
Wages payable xx

Incurrence of
direct labor
Issuance to production
DR Cr
Work in DR Cr
Process Inv. XXX
Notes: Salaries of factory worker
Salaries and therefore inilalagay sa
XXXinventory. Diretso na
  XXX wages payable
sa work in process hindi na ine-expense dahil product cost sya. It is part of the
cost of product
  ilalagay sa asset.
Accruals
XXX
Estimated overhead (Estimate first before the actual manufacturing
overhead)
Work in process inventory xx
Manufacturing overhead xx

Actual Manufacturing Overhead (Actual amounts)

Example; Utilities expense but is classifies as manufacturing cost instead
of utilities expense it will now be Manufacturing Overhead.
From this:
Utilities Expense XXX
Utilities Payable XXX
To this:
Manufacturing overhead XXX
Utilities payable XXX

Another example:
Accumulated Depreciation XXX
Depreciation expense XXX
But if the depreciation is factory equipment (MANUFACTURING COST)
Manufacturing overhead XXX
Accumulated Depreciation -Equip XXX

Journal entry would be:

Manufacturing overhead XXX
Accu. Dep. Utilities Payable XXX
 Various XXX

Finish goods
Finished goods inventory XXX
Work in process inventory XXX

Sold
Sold XXX
Cogs XXX
FG inventory XXX
Flow of cost Manufacturing:
Basic Equation for inventory accounts:
Beginning Balance
Add: Additions to inventory
Ending Balance
Add: Withdrawals from inventory

Product Cost Flow:

Raw Materials
Beginning Raw Materials Inventory
Add: Raw Materials purchase
As items are moved
Raw Materials Available for use in production
from raw materials
Less: Ending raw materials inventory
inventory and placed
Raw Materials used in production
into the production
process, they are
called direct
Manufacturing Costs:
materials,
Direct materials (Raw Mat used)
Add: Direct labor
Conversion costs are
Add: Mfg. overhead
costs incurred to
Total Manufacturing costs convert the direct
material into a
finished product.
Work in process
Beginning work in process inventory All manufacturing
Add: Total manufacturing costs costs incurred during
Total work in process for the period. the period are added
Less: Ending work in process inventory
to the beginning
Cost of goods manufactured for the period.
balance of work in
process.
Costs associated with the goods that are
accomplished during the period are
transferred to finished goods inventory.
Work in process
Beginning work in process inventory
Add: Total manufacturing costs
Total work in process for the period.
Less: Ending work in process inventory
Cost of goods manufactured for the period.

Finished Goods
Beginning finished goods inventory
Add: Cost of goods manufactured
Cost of goods available for sale
Less: Ending finished goods inventory
Cost of goods sold

Cost of Goods Manufactured

Raw materials used (DM)
Direct Labor
Factory Overhead
Total Manufacturing costs
Add: Work in process beginning
Total goods placed in process
Less: Work in process ending
Cost of goods manufactured

Sales
Less: Cost of goods sold
Gross profit
Less: Operating expenses
Net income before tax
In Summary:

Cost Accounting Cycle

Income Statement
Cash Controls
Petty Cash Fund
- Used to pay expenses of small value.
- Default system is Imprest System
- Petty cash fund is under current asset because it is still cash but a
separate fund
- To established petty cash fund, you will prepare voucher and cheque
and it will be named after the cashier or to the custodian of the
employee of the company. Then the cashier or the custodian will in-cash
it to the bank and will put it in the petty cash box
- Payment under imprest system wala munang journal entry,
instead it will be recorded by the custodian in the petty cash
journal.
Set-up of petty cash fund, P10,000 entry:
Petty cash fund 10,000
Cash in bank 10,000

Expenses paid
(no journal entry instead it will be recorded in petty cash journal)
PCV#021 Repair 1,000.00
PCV#022 Repair 800.00
PCV#023 Gasoline 2, 500.00
PCV#024 Food (Representation) 1,700.00
PCV#025 Food (Representation) 1,200.00
7,200.00
Replenishment
- If the cash in the cashier is insufficient or only a small amount remain
it’s time for replenishment.
- All petty cash entries in the petty cash voucher will now be recorded
and recognize as expense
Replenishment journal entry:
Repairs expense 1,000
Supplies expense 800
Gasoline expense 2,500
Miscellaneous expense 1,700
Legal expense 1,200
Cash in bank 7,200

Year-end adjusting entry:

PCV#026 Supplies 750.00
PCV#027 Repairs 1,600.00
Dec 31, 2022
Supplies expense 750.00
Repairs expense 1,600.00
Petty cash fund 2,350.00
Voucher System
- All payments must be approved by means of voucher.
- For other text book they set up voucher payable but it is the same as
accounts payable.
Voucher payable
- Meaning payments will be made using voucher and cheque.
- Issuing voucher and cheque is what we call voucher system

Bank Reconciliation

- Reconciliation of balance in cash in bank (Book balance) and bank

deposit (Bank balance).
- You will match the balance in the book (Cash in bank) and Bank balance
(Bank deposit).
Cash in bank balance or Book balance
- Will be derived from ledger cash balance.
- The deposit or debit in book balance is derived from CRJ or cash receipt
journal
- Then the credit or decrease in cash in bank book balance is derived
from cash disbursement journal.
- The total amount of CRH and CDJ will be recorded in the general ledger
to arrive at the ending balance.
Book balance
Cash in bank
Debit Credit
beg bal xx
CRJ xx xx CDJ
end bal xx
Bank balance
- Will be derived from passbook or bank statement.
- Passbook template
- In the point of view of bank debit is decrease and credit is the increase
or deposit.
Bank balance (Passbook or bank statement)

Date Debit (Withdrawal) Credit (Deposits) Balance

Bank Statement
Steps in bank reconciliation:
- After getting the balances of your account bank balance you will then
match it in your book balance (cash in bank)
- The debit (Withdrawals) in bank balance will be match against the
credit cash disbursement journal Book balance.
- Yung mga walang ka match yun na yung mga reconciling items.
- Next is you will match the bank deposit(credit) against the entries in
book balance (cash in bank) Cash receipt journal.
- Yung mga walang ka match yun na yung mga reconciling items.
- Pag na identify mo na yung mga reconciling items (walang ka match)
you will identify next what type of reconciling items yun.
Deposit in Transit
- A deposit in transit is cash and checks that have been received and
recorded by an entity, but which have not yet been recorded in the
records of the bank where the funds are deposited.
- If this occurs at month-end, the deposit will not appear in the bank
statement issued by the bank, and so becomes a reconciling item in the
bank reconciliation prepared by the entity.
Bank Credits (Credit memo)
- Na credit na sa bank account mo pero hindi pa sa book
- May entry na sa bank pero hindi pa recorded sa book.
Example:
Pag nag apply ka sa bank ng loans it is, automatically deducted from your
account pero hindi mo pa agad marerecord.
With entry?
Book Bank
Increase in cash yes none Deposit in transit
Increase in cash none yes bank credits (credit memo)
loan approval (proceeds from note)
interest on savings acct
Interest on savings account automatically credited to your account (Added)
Outstanding checks
- Na record na sa book pero hindi pa sa bank
- Nabayaran na ng business pero hindi pa na incash nung supplier or
payee kaya hindi pa nababawas sa account mo.
Bank debits (Debit memo)
- Na bawa na sa bank account pero hindi pa sa book
- Bank debits is automatically credited or binabawas kaya sya tinawag na
debit memo.
- Examples: NFS or not sufficient funds.
DAIF drawn against insufficient funds (Bounced check)
Service check (Below maintenance)
With entry?
Book Bank
decrease in cash yes none Outstanding checks
decrease in cash none yes bank debits (debit memo)
NSF, DAIF (bounced check)
service charge

Adjusted balance
method
Unadjusted balance per bank xx
bankreconcilin
Add: Deposit in transit xx g
Less: Oustanding checks (xx) items
Adjusted bank balance xx

Unadjusted book
balance xx
bookreconcilin
Add: bank credit memo xx g
Less: bank debit memo (xx) items
Adjusted book balance xx
Adjusting entries (Is based on book reconciling
items)
For bank credit memo
Cash in bank xx
Various xx
(Ex: loan payable - if proceeds of loan approval)
(Ex: accounts receivable - if
collection)
(Ex: interest Income )
Bank credit memo

Various xx
(Ex: Accounts receivable = NSF/DAIF check)
(Ex: Bank service charge = expense acct classifed as other expense)
Cash in bank xx
Bank debit memo

Adjusted balance method

Unadjusted balance per bank 86,855.00
Add: Deposit in transit 12,000.00
Less: Oustanding checks
Check # 124 2,500.00
Check # 126 950.00 3,450.00

Adjusted bank balance 95,405.00

Unadjusted book balance 88,430.00

Add: Bank credit memo
Customer's note 7,800.00
Less: Bank debit memo
NSF check 700.00
Service charge 125.00 825.00

Adjusted book balance 95,405.00

Adjusting entries
Cash in bank 7,800.00
 Note receivable 7,500.00
Interest income 300.00
Customer's note

Accounts receivable 700.00

Cash in bank 700.00
NSF check

Bank service charge 125.00

Cash in bank 125.00
Service charge recorded
Statement of cash flow:
Operating activities
- Cash is partnered with current asset, current liabilities, revenue, and
expense.
Investing activities:
- Cash is partnered with Noncurrent asset
- Purchase of equipment, sold or disposal of equipment
- Purchase of long-term equipment and purchase of investment in stock,
bonds.
Financing activities:
- Cash is partnered with Noncurrent liabilities and owner’s equity.

Two methods of statement of cash flow

Direct method
- Accounts will be analyzed one by one.
Example:

Accounts Receivable
Dr Cr
xx
credit sales xx xx collections for customers

Prepaid insurance
Dr Cr
cash payt in advance xx

Account payable
Dr Cr
payments to
suppliers xx xx purchases on acct
Salaries payable
Dr Cr
payment of salary xx xx accrual salaries

Direct Method
Cash flow operating activities
Collections for customers xx
Payments to suppliers (xx)
Cash paid to prepaid insurance (xx)
Cash payment for salaries (xx)
Cash payment for operating exp (xx)

Indirect method
- The cash flow statement begins with net income on an accrual basis and
subsequently adds and subtracts non-cash items to reconcile to actual
cash flows from operations.
- The indirect method is often easier to use than the direct method since
most larger businesses already use accrual accounting.
Indirect method
Net income xx
Add: Depreciation expense xx
Increase in A/R (xx)
Decrease in A/P (xx)
Problem pp 341
Accounts receivable
Debit Credit

bag balance 70,000.00

revenues on acct 545,000.00 565,000.00 collection from customer

50,000.00 end balance

615,000.00 615,000.00

Accounts payable
Debit Credit

41,000.00 beg balance

cash payt to accrual (unpaid) of
suppliers 411,000.00 400,000.00 expenses

end balance 30,000.00

441,000.00 441,000.00

Taxes payable
Debit Credit

4,000.00 beg balance

payment of taxes 41,000.00 47,000.00 accrued (unpaid) taxes

end balance 10,000.00

51,000.00 51,000.00
Direct method
Cash flow from operating activities
Collection from customer 565,000.00
Payment of operating expenses - 411,000.00
Payment of taxes - 41,000.00
Net cash inflow from operating activities 113,000.00

Indirect method:
1. Add back depreciation to net income
2. Analyze the changes in current asset/current liability (increase/decrease)
2018 2017 Inc/Dec

Accounts receivable 50,000.00 70,000.00 - 20,000.00

Accounts payable 30,000.00 41,000.00 - 11,000.00

Taxes payable 10,000.00 4,000.00 6,000.00

Guide:
increase in decrease in
balance balance
Current assets subtract from add to
net income net income
Current liabilities add to subtract from
net income net income

Indirect method:

Net income 98,000.00

Decrease in acct receivable 20,000.00
Decrease in acct payable - 11,000.00
Increase in taxes payable 6,000.00

Net cash inflow from operating act 113,000.00