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Concept explainers
Journal Entries:
It is a book of original entry. It records and summarizes financial transaction of an entity in chronological manner, generally according to dual aspect of accounting.
Accounting rules regarding journal entries:
- Balance increase when: Assets, losses and expenses get debited and liabilities, gains, and revenue get credited.
- Balance decrease when: Assets, losses and expenses get credited and liabilities, gains, and revenue get debited.
To prepare:
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Explanation of Solution
Solution:
(a)
- Raw material inventory is an asset. Since, raw material inventory is purchased, it increases asset. Hence debit raw material inventory account
- Account payable is a liability. Since, asset is purchased but not paid yet it increases liability. Hence, credit accounts payable account.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
June 30 | Raw Material Inventory | 500,000 | ||
Accounts Payable | 500,000 | |||
(Being raw material inventory is purchased on credit ) |
Table (1)
(b)
- Work in process-weaving is an asset. Since, material is used to manufacture good but not completed yet, it increases work in process-weaving. Hence, debit work in process-weaving account.
- Work in process-sewing is an asset. Since, material is used to manufacture good but not completed yet, it increases work in process-sewing. Hence, debit work in process-sewing account.
- Raw material inventory is an asset. Since, raw material is used, it decreases asset. Hence, credit raw material inventory account.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
June 30 | Work in Process-Weaving | 240,000 | ||
Work in Process-Sewing | 75,000 | |||
Raw Material Inventory | 315,000 | |||
(Being raw material directly used in production) |
Table (2)
(c)
- Factory overhead is an expense. Since, raw material inventory is used, it increases expense. Hence, debit factory overhead.
- Raw material inventory is an asset. Since, raw material is used, it decreases asset. Hence credit raw material inventory account.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
June 30 | Factory | 120,000 | ||
Raw Material Inventory | 120,000 | |||
(Being raw material indirectly used in production)) |
Table (3)
(d)
- Work in process-weaving is an asset. Since, labor is used to manufacture, it increases work in process-weaving. Hence, debit work in process-weaving account.
- Work in process-sewing is an asset. Since, labor is used to manufacture, it increases work in process-sewing. Hence, debit work in process-sewing account.
- Factory wages payable is a liability. Since, expense is incurred and expense reduces equity. Hence, credit factory wages payable account.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
June 30 | Work in Process-Weaving | 1,200,000 | ||
Work in Process-Sewing | 360,000 | |||
Factory Wages Payable | 1,560,000 | |||
(Being direct labor expenses incurred during production ) |
Table (4)
(e)
- Factory overhead is an expense. Since, labor is used, it increases expense. Hence, debit factory overhead.
- Factory wages payable is a liability. Since, expense is incurred and expense reduces equity. Hence, credit factory wages payable account.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
June 30 | Factory Overhead | 1,500,000 | ||
Factory Wages Payable | 1,500,000 | |||
(Being indirect labor expenses incurred during production ) |
Table (5)
(f)
- Factory overhead is an expense. Since, other overhead cost are indirect, it increases expense. Hence, debit factory overhead.
- Other accounts are expense to the company. Since, expense reduces equity, other accounts is credited.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
June 30 | Factory Overhead | 156,000 | ||
Other Accounts | 156,000 | |||
(Being other indirect expenses incurred ) |
Table (6)
(g)
- Work in process-weaving is an asset. Since, indirect labor is used to manufacture, it increases work in process-weaving. Hence, debit work in process-weaving account.
- Work in process-sewing is an asset. Since, indirect labor is used to manufacture, it increases work in process-sewing. Hence, debit work in process-sewing account.
- Factory overhead is an expense. Since, factory overhead is transferred to work in process, it decreases factory overhead. Hence, credit factory overhead account.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
June 30 | Work in Process-Weaving | 960,000 | ||
Work in Process-Sewing | 540,000 | |||
Factory overhead | 1,500,000 | |||
(Being |
Table (7)
(h)
- Factory wages payable is a liability. Since, liability is paid, it decreases liability. Hence, debit factory wages payable account.
- Cash is an asset. Since, cash is used to pay liability, it decreases asset. Hence, credit cash account.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
June 30 | Factory Wages Payable | 3,060,000 | ||
Cash | 3,060,000 | |||
(Being factory wages paid)) |
Table (8)
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Chapter 3 Solutions
MANAGERIAL ACCOUNTING FUND. W/CONNECT
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