Chapter 3, Problem 4BTN

To determine

Work in Process Inventory Account:

Work in process inventory account is asset accounts which show the balances of all partial produced products.

Raw Material Inventory Account:

Raw material inventory account is an asset account which show the balance of all those material which are not yet used to make a final product or work in progress.

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: Journal entry that takes place in process costing.

Explanation of Solution

Journal entry for process costing.

Raw material purchase:

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Raw Material Inventory
	Accounts payable
	(Being raw material inventory is purchased on credit )

                                                  Table (1)

• 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.

Direct material used:

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Work in Process
	Raw Material Inventory
	(Being raw material directly used in production)

                                                  Table (2)

• Work in process is an asset. Since, material is used to manufacture good but not completed yet, it increases work in process. Hence, debit work in process account.
• Raw material inventory is an asset. Since, raw material is used, it decreases asset. Hence credit raw material inventory account.

Indirect material used:

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Factory Overhead
	Raw Material Inventory
	(Being raw material indirectly used in production))

                                                  Table (3)

• 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.

Direct labor used:

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Work in Process
	Factory Wages Payable
	(Being direct labor expenses incurred during production )

                                                  Table (4)

• Work in process is an asset. Since, labor is used to manufacture, it increases work in process. Hence, debit work in process account.
• Factory wages payable is a liability. Since, expense is incurred and expense reduces equity. Hence, credit factory wages payable account

Indirect labor used:

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Factory Overhead
	Factory Wages Payable
	(Being indirect labor expenses incurred during production )

                                                  Table (5)

• 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

Factory payroll paid:

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Factory Wages Payable
	Cash
	(Being factory wages paid))

                                                  Table (6)

• 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, debit cash account.

Applied overhead:

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Work in Process
	Factory overhead
	(Being factory overhead cost applied )

                                                  Table (7)

• Work in process is an asset. Since, indirect labor is used to manufacture, it increases work in process. Hence, debit work in process-weaving account.
• Factory overhead is an expense. Since, factory overhead is transferred to work in process, it decreases factory overhead. Hence, credit factory overhead account.

Transfer to blending department:

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Work in Process-Blending
	Work in Process-Roasting
	(Being goods transferred from roasting to blending department )

                                                  Table (8)

• Work in process-blending is an asset. Since, work in process-blending is increased, it increases asset. Hence, debit work in process-blending account.
• Work in process-roasting is an asset. Since, goods is transferred from roasting to blending department, it decreases work in process-roasting account. Hence, credit work in process-roasting account.

Transfer to finished goods department:

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Finished Goods Inventory
	Work in Process-Blending
	(Being goods transferred from blending to finished goods department )

                                                  Table (9)

• Finished goods inventory is an asset. Since, finished goods inventory is increased, it increases asset. Hence, debit finished goods inventory account.
• Work in process-blending is an asset. Since, goods is transferred from blending to finished goods department, it decreases work in process-blending account. Hence, credit work in process-blending account.

Delivered to consumers:

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Accounts receivable
	Sales Revenue
	(Being goods sold on credit)

                                                  Table (10)

• Accounts receivable is an asset. Since, sales have taken place, but money not received yet. Hence, debit account receivables account.
• Sales revenue is revenue for the company. Since, goods is sold, it increases revenue. Hence, credit sales revenue account.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Cost of Goods Sold
	Finished Goods Inventory
	(Being cost of goods sold is recorded )

                                                  Table (11)

• Cost of goods sold is an expense. Since, expense is increased it reduces equity. Hence, debit cost of goods sold account.
• Finished goods inventory is an asset. Since, finished goods inventory is increased, it increases asset. Hence, debit finished goods inventory account.