Chapter 3, Problem 17P

To determine

(1) To Prepare:

T-Accounts for Opening Balances of Balance Sheet Accounts.

Introduction:

T-Accounts

• T-Accounts are a graphical representation of the postings made to the accounts during a reporting period.
• The left side records the debit entries and the right side records the credit entries of an account.
• Depending on the nature of the account i.e. Balance Sheet or Profit and Loss Account, Income or Expense account etc. the account balances are reflected.
• In case of Asset and Expenses accounts, the opening balance will be Debit Balance and in case of Liabilities and Incomes accounts, the opening balance is Credit Balance.
• They help in analysis of the transactions impacting the accounts.

To determine

(2) To Prepare:

T-Accounts and compute closing Balances

Introduction:

T-Accounts

• T-Accounts are a graphical representation of the postings made to the accounts during a reporting period.
• The left side records the debit entries and the right side records the credit entries of an account.
• Depending on the nature of the account i.e. Balance Sheet or Profit and Loss Account, Income or Expense account etc. the account balances are reflected.
• In case of Asset and Expenses accounts, the opening balance will be Debit Balance and in case of Liabilities and Incomes accounts, the opening balance is Credit Balance.
• They help in analysis of the transactions impacting the accounts.

To determine

(3) To Compute:

Close balance of Manufacturing Overhead by passing suitable journal entries.

Introduction:

Application of Overhead

• Overhead refers to the various types of costs associated with the costs of production.
• These can include direct over heads such as factory rent, factory electricity expenses etc or indirect overheads such as depreciation, insurance expenses etc.
• The application of overhead means allocation of costs of production that are attributable to the goods manufactured in a fixed proportion or method of allocation.
• The difference between the actual manufacturing overhead and the applied manufacturing overhead is the under application or over application of overhead.

Journal Entries

• Journal entries are the first step in recording financial transactions and preparation of financial statements.
• These represent the impact of the financial transaction and demonstrate the effect on the accounts impacted in the form of debits and credits.
• Assets and expenses have debit balances and Liabilities and Incomes have credit balances

T-Accounts

• T-Accounts are a graphical representation of the postings made to the accounts during a reporting period.
• The left side records the debit entries and the right side records the credit entries of an account.
• Depending on the nature of the account i.e. Balance Sheet or Profit and Loss Account, Income or Expense account etc. the account balances are reflected.

To determine

(4) To Prepare:

Schedule of Cost of Goods Manufactured.

Introduction:

Schedule of Cost of Goods Manufactured:

• The Schedule of Cost of Goods Manufactured is used to compute the cost of producing goods for a particular period.
• It comprises of Cost of Materials, Labor and Overhead attributable to goods manufactured.
• Cost of goods manufactured is the total cost of producing goods that are later sold to realize revenues. It includes direct and indirect materials, labor and overhead.

To determine

(5) To Compute:

Cost of Goods Sold.

Introduction:

Cost of Goods Sold

• The Schedule of Cost of Goods sold is used to compute the cost of goods sold in a particular period.
• Cost of goods sold comprises of the cost of
• Goods manufactured along with the effect of the change in inventory of the finished goods.
• The cost of goods manufactured is a sum of the direct material, labor and manufacturing overhead attributable to the product.

To determine

(6) To Prepare:

Income Statement for the year

Introduction:

Income Statement:

• Income Statement is a record of the revenues goods sold, expenses of direct and indirect nature, and the change in inventory.
• The difference between the revenues and expenses is the profit or loss for the reporting period.
• The profit or loss for the period is transferred to the Balance Sheet.