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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:
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Explanation of Solution
Journal entry for process costing.
Raw material purchase:
- 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 ($) | Credit ($) |
Raw Material Inventory | ||||
Accounts payable | ||||
(Being raw material inventory is purchased on credit ) |
Table (1)
Direct material used:
- 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.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
Work in Process | ||||
Raw Material Inventory | ||||
(Being raw material directly used in production) |
Table (2)
Indirect material used:
- 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 ($) | Credit ($) |
Factory | ||||
Raw Material Inventory | ||||
(Being raw material indirectly used in production)) |
Table (3)
Direct labor used:
- 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
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
Work in Process | ||||
Factory Wages Payable | ||||
(Being direct labor expenses incurred during production ) |
Table (4)
Indirect labor used:
- 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 ($) | Credit ($) |
Factory Overhead | ||||
Factory Wages Payable | ||||
(Being indirect labor expenses incurred during production ) |
Table (5)
Factory payroll paid:
- 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.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
Factory Wages Payable | ||||
Cash | ||||
(Being factory wages paid)) |
Table (6)
Applied overhead:
- 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.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
Work in Process | ||||
Factory overhead | ||||
(Being |
Table (7)
Transfer to blending department:
- 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.
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)
Transfer to finished goods department:
- 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.
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)
Delivered to consumers:
- 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.
- 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.
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
Sales Revenue | ||||
(Being goods sold on credit) |
Table (10)
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)
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Chapter 3 Solutions
Managerial Accounting (Looseleaf)
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