Chapter 2, Problem 5TIF

Todd Lay just began working as a cost accountant for Enteron Industries Inc., which manufactures gift items. Todd is preparing to record summary journal entries for the month. Todd begins by recording the factory wages as follows:

Then the factory depreciation:

Todd’s supervisor, Jeff Fastow, walks by and notices the entries. The following conversation takes place:

Jeff: That’s a very unusual way to record our factory wages and depreciation for the month.

Todd: What do you mean? This is the way I was taught in school to record wages and depreciation.

You know, debit an expense and credit Cash or payables or, in the case of depreciation, credit Accumulated Depreciation.

Jeff: Well, it’s not the credits I’m concerned about. It’s the debits—I don’t think you’ve recorded the debits correctly. I wouldn’t mind if you were recording the administrative wages or office equipment depreciation this way, but I’ve got real questions about recording factory wages and factory machinery depreciation this way.

Todd: Now I’m really confused. You mean this is correct for administrative costs but not for factory costs? Well, what am I supposed to do—and why?

1. a. Play the role of Jeff and answer Todd’s questions.
2. b. Why would Jeff accept the journal entries if they were for administrative costs?