NON-MANUFACTURING OVERHEADS

The accounting entry for transaction 12 is:

Dr Non-manufacturing overheads account 40,000
Cr Expense creditors account 40,000
At the end of the period the non-manufacturing overheads will be transferred to the
profit and loss account as a period cost by means of the following accounting entry:
Dr Profit and loss account 40,000
Cr Non-manufacturing overheads account 40,000

ACCOUNTING PROCEDURES FOR JOBS COMPLETED AND PRODUCTS

SOLD
When jobs have been completed, they are transferred from the factory floor to
the finished goods store. The total of the job accounts for the completed jobs for the
period is recorded as a transfer from the work in progress control account to the
finished goods inventory account. The accounting entry for transaction 13 is:
Dr Finished goods inventory account 300,000
Cr Work in progress control account 300,000
The cost of those goods that have been deliv
ered to customers must therefore be matched against the revenue due from delivery of
the goods so that the gross profit can be calculated. Any goods that have not been
delivered to customers will be included as part of the finished inventory valuation.
The accounting entries to reflect these transactions are: Transaction 14
Dr Debtors control account 400,000
Cr Sales account 400,000
Transaction 15
Dr Cost of sales account 240,000
Finished goods inventory account 240,000

COSTING PROFIT AND LOSS ACCOUNT

At frequent intervals management may wish to ascertain the profit to date for
the particular period. The accounting procedure outlined in this chapter provides a
database from which a costing profit and loss account may easily be prepared. The
costing profit and loss account for AB Ltd based on the information given in Example
4.2 is set out in Exhibit 4.3. Alternatively, management may prefer the profit
statement to be presented in a format similar to that which is necessary for external
reporting. Such information can easily be extracted from the subsidiary records.

JOB-ORDER COSTING IN SERVICE ORGANIZATIONS

The major difference is that service organizations do not have finished goods
inventory so a finished goods inventory account is not required. The costs incurred
will be initially debited to stores ledger, wages and service overhead control accounts.
The individual customer accounts will be charged with the labour, material and
overhead costs incurred and the total allocated to the work in progress account.

INTERLOCKING ACCOUNTING
With an interlocking accounting system the cost and financial accounts are
maintained independently of one another and in the cost accounts no attempt is made
to keep a separate record of the financial accounting transactions. Examples of
financial accounting transactions include entries in the various creditors, debtors and
capital accounts. To maintain the double entry records, an account must be
maintained in the cost accounts to record the corresponding entry that, in an integrated
accounting system, would normally be made in one of the financial accounts
(creditors, debtors accounts, etc.). This account is called a cost control or general
ledger adjustment account.

ACCOUNTING ENTRIES FOR A JUST-IN-TIME MANUFACTURING

SYSTEM
There is also a high velocity of WIP movement throughout the cell, and so it is
extremely difficult to trace actual costs to individual products. Adopting a JIT
philosophy also results in a substantial reduction in inventories so that inventory
valuation becomes less relevant. Therefore, simplified accounting procedures can be
adopted for allocating costs between cost of sales and inventories. This simplified
procedure is known as backflush costing. Backflush costing aims to eliminate detailed
accounting transactions and the need to follow products through all the stages of a
manufacturing process.