Chapter 5: Accounting Entries for a Job Costing

System
1)Recording accounting entries for integrated
accounting systems
Job / batch costing vs. Process costing
2 basic systems co.s adopt
Job / batch costing
• Each unit / batch of output of a
product is unique
• Hence there is a need for the cost of
each unit to be calculated separately
• Eg. Accounting & legal firms
provide customised services, each
client consumes different amount of
resources. Engineering and
construction co.s manufacture
according to individual customer
specifications
Process costing
• Masses of identical units are
produced
• Products are produced in same
manner and consume same amount
of resources
• Hence it is unnecessary to assign
costs to individual units, instead an
average cost per unit of output is
calculated
• I.e. total costs assigned to product
no. of units of output
• Eg. chemical processing; oil refining;
food processing; brewing co.s
Job / batch costing vs. Process costing

Accounting system applied

Integrated cost accounting system Interlocking cost

accounting system

 Cost & financial accounts are Cost & financial accounts are
combined in 1 set of accounts maintained separately

 Preferable as no duplication Not as preferable as there is

of accounting entries duplication of accounting entries
in cost a/cs & financial a/cs

Hence concentration here is on Integrated cost

accounting system!
Job / batch costing vs. Process costing
Materials recording procedure (exh.4.1&4.2 in text)
Goods (stock) received from supplier are inspected and
recorded in goods received note (i.e source document)

These details are transferred to the stores ledger account

When materials need to be used for a particular job,

product or consumed in overheads, the stores requisition
is used to issue out the materials. This detail is also cross-
referenced in the stores ledger account

The balance of materials in the stores ledger account is

then calculated (i.e. receipt – issues = balance)
1) Recording accounting entries for
an integrated accounting system
Example
The following are the transactions of AB Ltd for the month
of April.

1.Raw materials of £182 000 were purchased on credit.

2.Raw materials of £2 000 were returned to the supplier
because of defects.
3.The total of stores requisitions for direct materials issued
for the period was £165 000.
4.The total issues for indirect materials during the period
was £10 000.
1) Recording accounting entries for
an integrated accounting system(cont’d)

5. Gross wages of £185 000 were incurred during the

period consisting of:
Wages paid to employees £105 000
Tax deductions payable to Ind.Rev. £ 60 000
National insurance contributions due £ 20 000
6. All the amounts due in transaction 5 were settled by cash
during the period.
7. The allocation of the gross wages for the period was as
follows:
Direct wages £145 000
Indirect wages £ 40 000
1) Recording accounting entries for
an integrated accounting system(cont’d)

8. The employer ’s contribution for national insurance

deductions was £25 000.
9. Indirect factory expenses of £41 000 were incurred during
the period.
10. Depreciation of factory machinery was £30 000.
11. Overhead expenses charged to jobs by means of factory
overhead absorption rates was £140 000 for the period.
12. Non-manufacturing overhead incurred during the period
was £40 000.
1) Recording accounting entries for
an integrated accounting system(cont’d)

13. The cost of jobs completed and transferred to finished

goods stock was £300 000.
14. The sales value of goods withdrawn from stock and
delivered to customers was £400 000 for the period.
15. The cost of goods withdrawn from stock and delivered
to customers was £240 000 for the period.
1) Recording accounting entries for
an integrated accounting system(cont’d)
Recording journal entries & accounting entries

Purchase of raw materials

Dr Stores ledger control account 182 000
Cr Creditors control account 182 000

Return of raw materials

Dr Creditors control account 2 000
Cr Stores ledger control account 2 000
1) Recording accounting entries for
an integrated accounting system(cont’d)

Issue of direct materials

Dr Work in progress control account 165 000
Cr Stores ledger control account 165 000

Issue of indirect materials

Dr Factory overhead control account 10 000
Cr Stores ledger control account 10 000
1) Recording accounting entries for
an integrated accounting system(cont’d)

Stores ledger control account

1. Creditors a/c 182 000 2.Creditors a/c 2 000

a
3.Work in progress a/c 165 000
4.Factory overhead a/c
10 000
Balance c/d 5 000
182 000 182 000
Balance b/d 5 000
1) Recording accounting entries for
an integrated accounting system(cont’d)
Recording labour costs payable
Dr Wages control account 185 000
Cr Inland Revenue account 60 000
Cr National insurance contribution acct. 20 000
Cr Wages accrued account 105 000

All the amounts are settled by cash in the period

Dr Inland Revenue account 60 000

Dr National insurance contribution acct. 20 000
Dr Wages accrued account 105 000
Cr Cash/Bank 185 000
1) Recording accounting entries for
an integrated accounting system(cont’d)

Recording the allocation of labour costs

Dr Work in progress account 145 000
Dr Factory overhead control account 40 000
Cr Wages control account 185 000

Recording the employer ’s national insurance

contribution
Dr Factory overhead control account 25 000
Cr cash/bank 25 000
1) Recording accounting entries for
an integrated accounting system(cont’d)

Wages control account

5. Wages accrued a/c 105 000 7.Work in progress a/c 145 000
5. PAYE tax a/c 60 000 7.Factory overhead a/c
40 000
5. National Insurance a/c
20 000 ______

185 000 185 000

1) Recording accounting entries for
an integrated accounting system(cont’d)

Recording the overheads incurred

Dr Factory overhead control account 71 000

Cr Expense creditors control account 41 000
Cr Provision for depreciation 30 000
1) Recording accounting entries for
an integrated accounting system(cont’d)

Recording the allocation of overheads to production

Dr Work in progress control a/c 140 000
Cr Factory overhead control a/c 140 000

Note that the balance of the factory overhead account

represents the under or over-recovery of overhead that is
transferred to the Costing Profit and Loss account. In this
eg. there is an under recovery of o/h of £6 000 (£146 000 -
£140 000).
1) Recording accounting entries for
an integrated accounting system(cont’d)
1) Recording accounting entries for
an integrated accounting system(cont’d)
Recording non-manufacturing overheads incurred
Dr Non-manufacturing overheads a/c 40 000
Cr Expense creditors a/c 40 000

Dr Profit and loss account 40 000

Cr Non-manufacturing overheads a/c 40 000

Production / jobs completed during the period

Dr Finished goods stock account 300 000
Cr Work in progress control account 300 000
1) Recording accounting entries for
an integrated accounting system(cont’d)

Recording sales and cost of goods sold (product sold)

Dr Debtors control account 400 000
Cr Sales account 400 000

Dr Cost of sales account 240 000

Cr Finished goods stock account 240 000