Chapter 20, Problem 1GLP

To determine

Journal Entries:

A journal entry is the record of the transaction entered into journal. Journal entries records all the financial details of the business and reflects which accounts are affected through the transactions.

Accounting rules for journal entries:

• To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
• To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.

Cost of Goods Manufactured:

Cost of goods manufactured is the cost given out to units either finished or still under completion at the end of an accounting period. The cost of goods manufactured is valuable for inspecting the cost structure of the production tasks an organization.

Income Statement:

An income statement is one of the financial statement of the company which shows the company's profit and loss for a particular period of time.

The preparation of summary of journal entries, cost of good manufactured and partial income statement for Company S.

Explanation of Solution

Recording of purchase of raw material.

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
May 31	Raw material inventory		25,000
	Accounts payable			25,000
	(to record raw material purchase on credit)

• Since raw material inventory is an asset and asset is increased. Hence, raw material inventory account is debited.
• Since accounts payable is a liability and liability is increased. Hence, accounts payable is credited.

Recording of usage of direct material.

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
May 31	Work in process inventory - Cutting		21,750
	Work in process inventory - Stitching		0
	Raw material inventory			21,750
	(to record direct material usage)

• Since work in process inventory is an asset and asset is increased. Hence, work in process inventory account is debited.
• Since raw material inventory is an asset and asset is decreased. Hence, raw material inventory account is credited.

Recording of usage of indirect material.

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
May 31	Factory overhead		6,000
	Raw material inventory			6,000
	(to record indirect material usage)

• Since factory overhead is an expense and expense is increased. Hence, factory overhead account is debited.
• Since raw material inventory is an asset and asset is decreased. Hence, raw material inventory account is credited.

Recording of usage of direct labor.

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
May 31	Work in process inventory - Cutting		15,600
	Work in process inventory - Stitching		62,400
	Factory wages payable			78,000
	(to record direct labor usage)

• Since work in process inventory is an asset and asset is increased. Hence, work in process inventory account is debited.
• Since factory wages payable is a liability and liability is increased. Hence, factory wages payable account is credited.

Recording of usage of indirect labor.

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
May 31	Factory overhead		55,000
	Factory wages payable			55,000
	(to record indirect labor usage)

• Since factory overhead is an expense and expense is increased. Hence, factory overhead account is debited.
• Since factory wages payable is a liability and liability is increased. Hence, factory wages payable account is credited.

Recording of cost of other overhead.

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
May 31	Factory overhead		55,000
	Other accounts			55,000
	(to record other overhead cost)

• Since factory overhead is an expense and expense is increased. Hence, factory overhead account is debited.
• Since other accounts is a liability and liability is increased. Hence, other accounts is credited.

Recording of application of overhead.

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
May 31	Work in process inventory - Cutting		32,625
	Work in process inventory - Stitching		74,880
	Factory overhead			107,505
	(to record application of overhead)

• Since work in process inventory is an asset and asset is increased. Hence, work in process inventory account is debited.
• Since factory overhead is a liability and liability is increased. Hence, factory overhead account is credited.

Recording of cost of good sold.

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
May 31	Cost of good sold		213,905
	Finished goods inventory			213,905
	(to record cost of good sold)

• Since cost of good sold is an expense and expense is increased. Hence, cost of good sold account is debited.
• Since finished good inventory is an asset and asset is decreased. Hence, finished good inventory account is credited.

The statement of cost of goods manufactured of Company S for the month of May are as follows:

Company SSchedule of Cost of Goods ManufacturedFor the month of May
Particulars	Amount($)
Direct material used	21,750
Direct labor used	78,000
Factory overhead applied	107,505
Cost of goods manufactured:	207,255

The partial income statement of Company S for the month of May are as follows:

Company SPartial Income StatementFor the month of May
	Amount ($)	Amount ($)
Sales	256,000
Total Revenue		256,000
Expenses:
Direct material	21,750
Direct labor	78,000
Indirect material used	6,000
Indirect labor used	55,000
Other overhead cost	47,000
Total Expense		207,750
Net Income		48,250