Chapter 4. Cost Accounting Cycle.

121

Ledger. These accounts include Materials, work in process, Factory overhearl,

Factory Overhead Applied and Finished Goods. However exact division of accounts
depends upon narure ot business operations and policy of management.
Two
reciprocal accounts titled as Factory I edger Control and General Ledger Control
are
then inserted in, General Ledger and Factory Ledger respectively to keep the two
ledgers balance,

Given below are entries in generaljoumal form to record the transactions comprising

When separate General Ledger and Factory Lcdger

When single Ceneral Ledger is
are maintained
mainraincd
Head Office Books Factory OIIice Books
STEP T: ACQUISITION AND USE OF MATERIALS
(i) Purchase of materials,
ffi;;i;;;;ili- - ----"* Factory ledger Materials control
General ledger

(ii)
General ledger
Materials control Factory ledger Materials control

(iii) Use of materials in production,

y* ir irs:i:ii:rilit . lliHip, Work in process control
FOH control FOH control
Materials control Materials control
(iv) Return ofunused materials from factory.
Materials control
I*i-eri" Materials control
Work in Proecss conrrol I Work in process control
FOH control FOH control

STEP 2: USE OF LABOUR

tions and net pay.
Payroll control
Income tax withheld
Provident fund payable

.......*1y..9!.1:.:.{:9*1,.9..1..... . .
Acerued payroll
122 Part-ll, System of Accounting for Costs.

Preparing payroll voucher and payment.

Accrued payroll Accrued payroll No entry
Vouchers payable Vouchers payable
Vouchers payable No entry
Bank

Distribution of payroll.
w;;[ilil;;;;;;;il;;i'- Factory ledger
overhead control Marketing overhead control
Marketing overhead control Admin. overhead control
Admin. overhead control Palroll
Payroll control

FOH control Factory ledger FOH control

Ceneral ledger
ty:l*ii$- g::::l-:* : ?t::el l -Y:: l::il F- -et::It-':g. :-elilel
Admin. overhead control Admin. overhead control
Provident fund payable
Social security fund Social security fund
payable ili;di;-:-
STEP 3: INSURANCE AND CHARGE OF FACTORY OVERHEAD

FOH control Factory ledger FOH control

Vouchers payable Vouchers payable General ledger
id insurance lnsurance
'Allowance for Aiffiil;;'i;*'
depreciation
.,.............9:p:::i1tiv.1,.............".....

6il;ru;;r i;;;.y ;y;;d;;A ;;

Work in process No entry

. .. t9ll trli:9 ... . I9-ll.p.pli:-d......... . ........

Disposing under or ove factory overhead.

I\io entry FOH applied
FOH control
(I: -:]-q:: .lxPv-:v.:*: *- ....
applied account)
 Chapter 4. Cost Accounting Cycle- 123

shall be reverse)
shall be reverse)

Work in process control

Cost ofgoods sold control

(fo dispose off underaPPlied ifo aitpote off underaPPlied

.,:.....,.......;...'..-.....
balance. The accounts shall
"-'----'--'-""":---
be debited in ProPortion to

g"irv t" close overaPPli^d

.-.---....:...,..,........,,..
balance shall be reverse.)

HEADS
i ll:
I
 124 Part-ll. System of Accounting for Costs.

STEP 7: CLOSING OF ACCOUNTS TO INCOME SUMMARY

Sales control Sales control No entry
Inc,rme summdry Income summary
Income summary Income summary No entry
Cost of goods sold Cost ofgoods sold
Marketing overhead Marketing overhead
control control
Admin. overhead control Admin. overhead control

QUESTIONS FOR DISCUSSION AND REVIEW.

L Why it becomes necessary to use control accounts? How do the subsidiary
legers assist in making detailed analysis? Explain with reference to sales.

2. Explain the following terms:

(i) Control account (ii) Subsidiary ledger (iii) General ledger
3. Explain the importance of source documents in an accounting system.
4. What .is meant by following terms: (i)Periodic inventory system and (ii)
Perpetual inventory system? Which of these two systems is better?
5. What do you understand by the following terms?
(a) inventoriable costs and (b) non-inventoriable costs.
6. Explain the term "cost accounting cycle". How much period does it covers?
List down the control accounts used in cost accounting cycle.
7 Explain the term "flow of cost". Illustrate with the help of diagram.
8. Name the subsidiary records for the following control accounts:
(a) Materials (b)
Payroll (c)Factory overhead
(d) Work in process (e)
Finished goods
9. Explain nature of "payroll control" account. Can its use be dispensed with?
10. (a) Enumerate different steps involved in cost accounting cycle.
(b) List down at least l0 source documents used in cost accounting cycl6.
I l. "Factory overhead costs are charged to production on estimated basis via
predetermined applied rates". Elaborate the statement.
t2. Enumerate source documents used to record the following transactions:
(a) purchase of materials;
(b) return of unused materials to factory;
(c) recording the Iabour cost;