With the cost data once at hand, as found in the various material and time reports, the next step is to arrange and summarize this information. The present chapter shows what becomes of the information already recorded, and how it eventually finds its way into the factory or operating ledger.
Records and Forms Generally Used
The records listed below are those used for compiling the cost data. They are discussed in the order in which they would probably be put into operation, rather than in the order in which they are listed. It will be noticed that these records divide themselves into two groups; first, those serving the twofold purpose of recording financial transactions and also of furnishing information for the cost records; and, second, those dealing almost entirely with data relating to costs.
(1) F1nanc1al Records
Accounts Payable Voucher
Register of Accounts Payable
Billing and Shipping Records
Register of Sales and Costs
(2) Cost Records
Material Received Summary
Report of Material Delivered
Analysis of Pay-Roll
Statement of Factory Expenditures
Process and Machine Cost Records
Production Report or Production Summary
Defective Work Report
Stock Records—Part-Finished Stock
Stock Records—Finished Stock
Operating or Factory Ledger
Purchase Journal (Forms 5, 6)
A record of this character, sometimes called the “Purchase Analysis,” is frequently used in the simpler cost systems.
Form 5 should be used only where an account is kept of the purchases according to classification of material or product. The form is suitable where a proof system for estimating costs is in use.
Form 6 is an analysis of the purchases and expenses, and should be employed where a voucher system is not in use. Where this record is introduced, accounts are opened in the general ledger for the various classifications shown. At the end of the month the “Total Amount” column is credited to the Accounts Payable account, and the total of the various columns up to and including administrative expenses is charged to the debit of the respective accounts.
The column “Sundry Accounts” is intended for classifications not otherwise provided for. These accounts are either posted individually to the debit of the extra classifications, or they are summarized and so posted at the end of the month.
Accounts Payable Voucher (Forms 7, 8)
The “Accounts Payable Voucher” is a form used for listing and classifying all expenditures incurred, whether for material, labor, indirect expenses, selling expenses and administrative expenses, or for additions to the plant, furniture and fixtures, etc. The form provides for recording the number of voucher, name of creditor, date, amount and classification of the items contained in the invoices attached to the voucher, and also for information as to the payment of each; as date, bank and check number, approval, etc. In order to facilitate the making of proper classifications, and their entry in the accounts payable register, it is well to have the names of the accounts which are most frequently affected printed upon the voucher. This also saves the time involved in writing in the names of the accounts every time a voucher is prepared.
The invoices from the creditors are attached to the accounts payable voucher and also copies of the purchase requisition, purchase order, material received sheets, and sometimes the cancelled check, when this is returned from the bank. Thus it will be seen that the voucher provides for a complete history of the purchase transaction. A separate voucher should be prepared for each creditor from whom purchases are made, but in case several transactions with the same creditor have occurred during the month, and the account is paid monthly, several invoices may be attached to the same voucher.
When the pay-roll is distributed through the accounts payable register, a voucher should be prepared for the payroll.
The information under the caption “Operating or Factory Ledger” should be posted to the accounts in the factory ledger under the proper classification.
Register of Accounts Payable (Form 9)
The “Register of Accounts Payable” is the record in which the accounts payable vouchers are entered and summarized. The vouchers are usually entered in numerical order according to date. The register of accounts payable is sometimes known as “Voucher Register,” “Accounts Payable Register,” “Record of Audited Vouchers,” and “Creditors’ Record.”
The record generally provides columns for recording the following information:
Date, number of voucher, name of creditor, amount payable, and distribution of the amount into the columns provided for the classification, as shown by the accounts payable voucher. The record also provides columns for showing the information relating to the payment of the voucher.
One of the principal reasons for the use of a register of accounts payable is the fact that it dispenses with the necessity of keeping detailed ledger accounts with the creditors, thereby saving considerable time.
At the end of the month the total of the column headed “Vouchers Payable” is posted to the credit of that account in the general ledger. The totals of the columns under the captions “Operating Accounts” and “Property Accounts” are posted to the debit of the respective accounts in the general ledger.
The vouchers payable account is the controlling account of the register of accounts payable.
Under the caption “Miscellaneous Accounts” will be entered the items which are r1ot provided for in the other classifications, and these will either be posted individually to the debit of the account affected, or be summarized at the end of the month for posting.
Material Received Summary
A summary is sometimes prepared from the material received sheets, and may be used where different shipments of the same class of raw material have been received, the price remaining the same. The posting of material received, when a summary is not used, is taken from the material received record. An entry is made on the accounts payable voucher for material received, according to classification, and it is also entered in the “Factory” column in the register of accounts payable. An entry is also made of the material received on the debit side of the raw stock record. In case the material is intended only for a special order, it should be entered on the cost record of that order, and then need not necessarily appear on the raw stock record.
Report of Material Delivered (Forms 24, 25)
If the postings are made daily from the material requisitions, no summary of material delivered to the operating departments is needed, but where the cost of the material does not fluctuate, it may be of advantage to summarize weekly, or at the end of the cost period.
In many kinds of manufacturing, differences occur in the cost of the raw material without any corresponding difference in the quality of the material, as in the buying of cotton-seed oil, or hops. In such cases, the average cost of material for the cost period is generally taken and treated as if it were the real cost. Unless this is done, or unless the price remains stationary, the summary of material requisitions had better be omitted, as its advantage lies in collecting many charges of a similar kind into one general charge for posting.
Form 24 is intended to classify the material used according to the selling classifications of the product only, and is especially adapted for a system in which estimated costs must be proved.
Departments A, B and C represent, on this form, operating departments of the plant. The captions 1, 2 and 3, under the departments, represent the selling classifications.
Form 25 is an ordinary record for the recapitulation of material requisitions, according to order number, product chargeable, article, quantity and value. The material delivered to operating departments is credited on the raw stock records and charged under the caption “Material” to the proper “Work in Process” account in the factory ledger.
Partly-finished material taken out of stock is also posted to the cost records according to the classification provided for by the system in use, which may be order, article, job, section or process.
Pay-Roil (Forms 37-40)
The pay-roll is prepared from the time reports for the purpose of summarizing and distributing the amount paid to each employee. The type of form selected depends on the class of system to be used, and the information desired.
Form 37 represents the factory pay-roll for a week, with all the operating departments on one sheet, the labor being classified in the operating departments into “Direct” and “Indirect.” Provision is also made for special labor, as in the case of a cupola where a foundry is one of the operating departments. The labor in connection with the cupola is all direct, as the cupola is a process cost. The labor cost of the power department is also provided for, and as the distribution is made from the total cost, all the labor is regarded as direct in that department. Provision is made for salaries of officers, of office clerks, foremen, supervision, shipping, and any other clerk hire. While the form is very complete, there are many cases where it will not be practicable to use it in its entirety, because of the fact that salaries are combined with the workmen’s pay-roll on the one record.
Form 38 provides only for the pay-roll according to department, dividing the labor into direct, supervision and office salary, the direct labor being entered only in the operating departments.
Form 39 provides for recapitulating the labor according to department, direct, indirect and supervision.
The individual time records may be posted daily on Form 40, just as on Form 37; and the total amount of pay is shown at the end of the pay period. The form provides for classifying the labor according to department only, no distinction being made between direct and indirect labor.
The pay-roll may be entered in different ways:
(1) It may be attached to an accounts payable voucher, upon which it will be classified for charging to the various factory accounts as well as to administrative expense accounts. The accounts payable voucher is then entered in the register of accounts payable, where it appears as a credit to the Pay-Roll account, a charge being made to the factory ledger and other expense accounts. The entry is made from the accounts payable voucher to the various department accounts in the factory ledger, and also to the various cost records under the caption “Direct and Indirect Labor.”
(2) When the pay-roll is not attached to the accounts payable voucher, but entered directly in the cash book and charged to a Pay-Roll account in the general ledger, an entry should be made distributing the Pay-Roll account, and charging the various departments, processes, or articles with their proper proportion of direct labor. The indirect labor is charged to an indirect labor account, in total, or under whatever classifications the division of the labor accounts may require.
Analysis of Pay-Roll (Forms 35, 36)
The “Analysis of Pay-Roll” is for the purpose of recapitulating the labor charges into classifications not provided for on the regular pay-roll form, or for those cases where the pay-roll form is not suitable for an analysis.
The information to be entered upon the analysis will depend both on the class of system used and the type of pay-roll. The pay-roll may be analyzed in various ways for cost purposes, viz:
(1) According to departments, operations and processes
(2) According to machine costs
(3) According to classifications of product
Form 35 represents a method of recapitulating the pay-roll for a week according to department, the direct labor cost being charged to a classification of product especially adapted to a departmental system. Provision is made also for the indirect labor. Under certain conditions this form may be used as a pay-roll as well as an analysis.
Form 36 is not intended for pay-roll purposes, but for making a recapitulation of all workmen’s time, showing the total number of hours chargeable to an operation or order. This form may be used to ascertain the total number of hours of the machines or equipment, for the distribution of either machine charges or indirect expenses, on the basis of production hours.
Statement of Factory Expenditures (Forms 41-44)
Indirect expenses are so general in character and arise from such divergent sources that it is good policy to summarize them upon a statement of factory expenditures, which may be used as a summarized statement of factory accounts or as a source from which the distribution of the general operating expenses may be made. A statement of factory expenditures is given, with the figures entered, to illustrate its use more clearly.
Form 41. A form of this character may be used for analyzing either factory expenditures, or selling and administrative expenses. The items composing the expenditures may be entered across the top of the form, with the date and voucher number at the left-hand side; or at the end of the period the accounts may be entered at the left-hand side running down, and the months across the top, thereby making a comparative statement of expenditures.
Form 42. This form is used to analyze factory expenditures only, and is intended for distributing the indirect expenses over the product as a whole and not by department. The record provides for showing information in comparative form, and provision is made to show the inventory at the beginning of the period, as well as all direct and indirect charges, from which the cost of the goods sold is deducted, leaving the inventory at the end of the period comprising raw material, goods ui process and finished stock on hand.
Form 43. This is a monthly statement taken from the factory ledger, and may properly be called an “Analysis of Manufacturing Charges.” It represents the operations of one month only. The titles of the accounts are entered in the column at the left of the form, and a column is provided for each operating department.
The monthly statement, when taken from the factory ledger, will show the material and labor charged to each operating department, and an analysis of the departmental expenses. Columns are ruled on the lower part of the form for operations of the storeroom, for general factory expenses, and for the distribution of the same.
The chief purpose of this form, outside its direct information, which is valuable to the management, is to supply data from which may be determined the percentage to be used in distributing the indirect expenses on the cost of all articles as entered on the cost record.
The information shown under the caption “Direct” represents the productive labor of each department, as well as the material used; whereas all the items appearing under the caption “Indirect ” represent expenses chargeable directly to each of these departments, except the account “General Operating Expenses,” which contains such items as appear in the lower section of the form and do not relate to any particular department. These expenses may be prorated over all the departments on the basis of the amount of direct labor charged to each department, by multiplying this amount by the percentage obtained from dividing the total amount of the operating expenses by the direct labor. The department accounts will then be charged with all the indirect expenses, including the general operating expenses; and the percentage shown will represent the proper amount to be added for indirect expenses to the prime cost of the articles manufactured in any one of these departments.
In the lower left-hand section of this form the storeroom operations are indicated, i. e., the value of the inventory at the beginning of the period, the purchases during the period, and the material delivered to operating departments during the month. This material delivered is recorded in the upper section of the statement under the caption “Direct,” opposite the account “Material.” The balance shows the inventory of raw material on hand at the end of the month.
The only important difference between Form 43 and Form 44 is that the latter is made in comparative form. The statements of factory expenditures as shown by these forms are of added value to the management when used as a monthly comparative record of the indirect expenses in each department.
Process and Machine Cost Records (Forms 45, 46)
The designs illustrated are used only in a machine or process cost system, provision being made for the distribution of power and machine costs. A detailed explanation of these records will be found in Chapter XV.
Production Report or Production Summary (Forms 47-50)
There are many kinds of production reports to meet the demands of widely different industries. In some cases time reports are used for reporting production, as explained in Chapter VII.
The production report is valuable for indicating the efficiency of various departments. The forms should be so filed that comparison between them will be easy, and discrepancies will be noted at once. In this way the effect of any change of conditions or methods can be accurately gauged. This double service makes the production report one of the most important forms of a system.
Some of the purposes for which production reports may be used are as follows:
(1) Reporting production only
(2) Reporting production and indicating on the report the amount of defective work
(3) Indicating the cost of material
(4) Showing the labor and material cost
The production report is used in many forms. Those shown in the present volume are typical.
Form 47. This form is intended to report the production by department and order number and to show the total produced, the amount defective and the amount good. The operation may also be indicated, if desired.
Form 48. This form represents a plan for gathering the material and labor cost on a production report, but does not provide for indirect charges unless they are included in the machine rate, in which case they would be entered under the column “Process or Machine Costs.”
The form is intended to be used principally in a process or machine cost system, and the time of all workmen on one operation may be recapitulated under the caption “Time,” according to the hours of the workmen, or the machine hours, depending on the system in use.
Form 49. This form is a monthly report, and provides for recording the production by departments daily, according to the classification of product. It is especially adapted to a departmental system. Provision is made for costing the material on the report. When this is done the rate to be used may be obtained from the bill of material.
The report may be made out by the foreman of a department, or may be compiled from time records showing production, or from production reports which show production only.
Form 50. This form is a monthly report intended to record the production according to department, operation, and order number, if one is used. The columns 1 to 31 represent the days in a month, and are intended for entering the total production each day, according to the operation. Provision is made on the right-hand side of the form for costing the material, the necessary data being taken from a bill of material or material requisition. The information contained on the production reports is entered on the cost records.
Defective Work Report (Form 51)
It is more convenient sometimes to have separate forms for reporting or summarizing defective work than to have columns on the regular production or time reports. The form is valuable as an organization and efficiency report. A certain loss from defective work is almost sure to occur; and the only way to reduce this to a minimum is to have definite reports showing when, where and why the defect occurred.
The mere fact that all defective work is reported to the management will tend to minimize this loss. Also, if there is rivalry between the operating departments as to which can make the best record, and the foremen of all the operating departments receive copies of these reports, it will tend strongly to lower losses on defective work.
The cost of defective work may be charged against the department, job, order, or article, or may go into a special account and be included in the indirect expenses. If it is possible to use some of the material again, as in the case of defective castings, it should be taken back into stock at its scrap value; and the difference between the scrap value and its original cost may be charged as stated above. The cost of defective work should include its proper proportion of the indirect expenses.
Cost Sheets (Forms 53-55)
All cost data, in whatever form they may have been gathered, must be finally entered on a form showing the complete costs of production. It would be difficult to name any form which could be called a standard form for this purpose, owing to the many different manufacturing industries, the varying conditions existing in plants, and the different types of cost systems.
The forms presented here merely illustrate the methods by which cost data may be entered to show final results. Indeed, special forms are not needed for the purpose, as complete costs may be shown on production orders (especially where the production order represents a customer’s order), or they may be compiled on a production report. Both of these plans are illustrated in this book.
In many cases the cost sheet is used as a cost record only; and cost data from all sources are compiled upon it. The best plan to pursue in designing a cost record will depend, therefore, on the manufacturing conditions and the type of system in use or to be used.
Form 52. This is not a record of costs as used in a regular cost system, since it only records estimated costs. It is therefore adapted only to one of the systems where costs are estimated in advance and these estimates are checked by results.
Form 53. This form is intended to show the cost per article where a process system is used. The quantity produced and the time of the workmen are entered according to department, under the captions 1, 2, 3, 4 and 5. The process rate per hour is ascertained and the process cost calculated. The material cost is then entered, and a summary of this information shows the total cost.
Form 54. A form of this character may be termed a “Progressive Cost Record,” inasmuch as the costs are carried from department to department until the final costs are obtained. A separate sheet is used for each department. In the first department no record is made under the caption “Previous Operations,” but all the other columns are used, the material and labor costs and the information under “Indirect” coming from the forms containing the required information, according to the system in use. The production of the department is shown under “Quantity,” and the total cost under the caption “Total.” When work progresses to the next department, the record will show the cost of previous operations as taken from the “Total” column of the previous department’s report.
Form 55. This record is intended to be used where all cost data are entered on other forms and then transferred to and combined with this record. In addition, the record is used for showing the number of machines in use in connection with production, and the average production per machine, this information being only of a statistical character.
The postings from the cost sheets to other records will depend entirely on what type of system is in use. Wherever a stock record is kept, an entry should be made to “Part-Finished” or “Finished” stock, according to the proper classification. In a system where accounts are kept representing goods in process of manufacture, whether it be in a factory ledger or the general ledger, the totals, as compiled on the cost sheets, are credited to the proper classification in those ledgers, so that the balance of the accounts affected will show the value of the goods in process of manufacture.
Record for Part-Finished and Finished Stock (Forms 56-59)
The functions and importance of stock records were discussed under the head of raw material stock records. The present records form a part of the stock system in a factory. The regular forms for finished stock may be used, with the necessary minor changes in the headings, for part-finished stock records.
Form 56 illustrates a simple method of keeping stock records. The form may be used for finished or partfinished stock. The caption “Used” on this design is intended to cover part-finished stock taken back into process of manufacture, either for completion or for assembling purposes.
Form 57 carries out the same idea as Form 56, except that the word “Deliveries” is substituted for the word “Used.” The form is also more complete for posting purposes.
Form 58. This might be termed an “Analytical Record of the Finished Product”; and it is used where it is convenient to keep a record on one sheet of a number of different sizes of the same article. Provision is made only for quantity produced, quantity of orders received, and the quantity shipped.
Wherever a form of this character is used, and it is desired to carry the value of the finished stock on the records, it will be necessary to use one of the regular stock records showing the value. In this case, the regular record would provide only for the article, independent of the sizes, the record showing sizes being merely an analyzed statement of sizes in stock.
Form 59. This record, wherever it can be used, makes about as complete a stock record as could be desired. The particular features of interest are the columns for orders received, orders cancelled, and unfilled orders on hand.
The entries on this finished stock card, costing the production, are taken from the cost record. When goods are sold, the finished stock card is credited from the billing and shipping records, and when part-finished stock is taken out, from either the material requisition or bill of material.
Billing and Shipping Records (Form 62)
It is frequently possible to combine the records for billing, shipping and costing the sales. For instance, an order is received and accepted. The billing clerk then makes out three copies of the bill. The original goes to the customer, the duplicate goes to the shipping clerk— serving as a shipping order—and the triplicate remains in the office for entry on the register of sales and costs. It will be noticed that the triplicate provides extra columns for recording the information applying to the costs, such as rate and amount of cost, the number and date of invoice, the name and address of customer, shipping memoranda, quantity, amount, etc.
Only one form of billing record is illustrated here, and this is presented for the one purpose of illustrating the accounting procedure involved. When a form is to be devised, its design will depend entirely on the conditions of manufacturing and selling, and the system in use.
The information on the triplicate copy, under the caption “Cost Price,” is taken either from the stock record or cost record showing the cost of the articles that are to be shipped, and the entry according to selling price and cost price is made on the register of sales and costs, according to the classification provided for in that record.
Credit Certificate (Form 63)
This is intended for recording the allowances to customers either for returned goods or for a special claim. In case of returned goods, the information will be taken from the material received record, and in case of a special allowance, from correspondence. In the case of returned merchandise, the information under the caption “Selling Price” should be taken from the customer’s record, and the information under the caption “Cost Price,” from the cost or finished stock record.
The original copy is sent to the customer, showing the amount of credit allowed; and the entries in the books are made from the duplicate copy which is placed on file. The amount of the selling price and cost price is entered on a separate sheet in the register of sales and costs, according to the classification of the sales, in the same manner as the sales were entered. In case a special allowance is made, the entry should be made through the journal, the customer being credited and the proper account being charged.
Register of Sales and Costs (Forms 64, 65)
When the sales are not classified as to departments or article, the sales and costs may be summarized by means of an adding machine; but if the sales are classified to any extent, it is well to use a register of sales and costs for the purpose of recording the information, this being entered daily in total or in detail. It may be necessary to have a separate sheet for each department.
A register of sales and costs may provide for recording the date, the number, the name and address of customer, amount and cost of sales, and be provided with columns showing the classification as to the product or department. In addition, the total amount of the sale column, or accounts receivable column, may be divided to show the classification of the customers’ accounts.
There are two plans in general use for keeping a register of sales and costs:
(1) Providing for the classification of the sales according to sales and costs for posting to the department and controlling accounts only, this method being used where the posting to the customer is made from the bill.
(2) Providing for the same information so far as the division of the sales and costs into departments is concerned, but providing extra columns for entering each bill according to name, terms, etc., all postings being made from the register.
The choice of a plan will depend on the general billing system in use.
Form 64 illustrates the second plan, whereby the customers’ accounts are entered and distributed, according to departments, into sales and cost of sales. Provision is also made on this form for showing the gross profit on each order. The customers’ accounts are charged and at the end of the month the total of the accounts receivable column is debited to that account in the general ledger. The totals of the sales columns are credited to the department sales accounts in the general ledger, and the totals of the cost of sales columns are charged to the department sales accounts. Where a controlling account is kept of the finished stock, the total of the cost of sales columns is credited to that account.
Form 65 is a special form for the purpose of analyzingsales according to material, labor and indirect, and is intended to be used only in a system for proving estimated costs.
A “Cost Journal” is practically the same as the ordinary two-column journal, provision being made for the date, folio for reference purposes, a wide column for explanations, and two money columns, one for the debits and the other for the credits.
Its function is to record and arrange the information obtained from the original factory records for posting to the accounts in the operating or factory ledger.
It is not always necessary to use a cost journal as a posting medium, since the postings may often be made from the original factory records.
Operating or Factory Ledger
The “Factory Ledger” is that record in cost accounting which arranges and classifies the information contained in the original factory records.
The ruling of the factory ledger will depend to some extent upon the type of system in use. In some cases the ordinary ledger ruling is quite sufficient, while in other cases columns should be added for showing a detailed analysis.
The accounts usually found in the “Factory Ledger” are:
(1) Raw Material and Supplies Account
(2) Labor Account
(3) Indirect Expense Account
(4) Work in Process Account
(5) Part-Finished Stock Account
(6) Finished Stock Account
(7) General or Private Ledger Account
(1) Raw Material and Supplies Account
This account shows in total the information contained in detail in the raw material record. It is debited with all receipts of raw material and supplies, and credited with all deliveries to operating departments, and with any material returned to the creditor. Therefore the balance at the end of the cost period should agree with the total of the balances represented by the detailed records of raw material stock, thus creating a control and check upon the work and information contained in the detailed stock records.
(2) Labor Account
The amount of the direct labor, as shown by the payroll, is debited to the Labor account; and this account is credited with the amounts of direct labor distributed to the various departments, orders, jobs, or articles, in accordance with the system used. The advantage of having the cost period in agreement with the pay-roll periods is noticeable here, because if the cost period and pay-roll period are in agreement, no balance will appear upon this account.
(3) Indirect Expense Account
The Indirect Expense account is debited with the expenses incurred, and credited with any allowances made by creditors on expense items, and with the amounts distributed to each job, order, article, or department. Separate accounts may be kept in the ledger for each class of indirect expense. When, however, the indirect expenses are kept in one account, they should be analyzed on the statement of factory expenditures. The balance of the Indirect Expense account is generally a debit, representing prepaid expenses to be carried as deferred charges.
(4) Work in Process Account
For the purpose of controlling the work in process, accounts may be kept in the factory ledger in any one of three ways:
(1) An account styled “Work in Process” may be kept, which will show in total what is shown in detail by the cost sheets. The account is debited with the material, labor and indirect expenses chargeable to the various departments, orders, jobs, or articles upon which operations have been begun, and is credited with the total cost of the part-finished or finished work. The balance of the account then represents the amount of work still in process, and should agree with the cost of the unfinished work as shown by the detailed cost sheets.
(2) Accounts may be kept which will show the work in process in each operating department. When work is transferred to a department the Work in Process account of that department is debited with any cost incurred in previous operating departments, and to this is added the material, labor and overhead cost incurred in the department itself. When the product is transferred to another department the account is credited with the total cost, thus balancing as to that particular work. Any balance remaining shows the cost of the unfinished work in that department, and should agree with the detailed departmental cost sheets of jobs, orders, or articles.
(3) Accounts may be kept with each order, job or article. The material, labor and indirect expense, as distributed, are debited to the order, job or article, and the account is credited with the total cost when the work is completed and transferred to stock. The balance of each account shows the costs incurred on the unfinished work.
(5) Part-Finished Stock Account
This account is debited with the cost of part-finished stock as far as it has been incurred, and credited with the cost of any part-finished stock requisitioned out, whether for the purpose of completing, assembling, or selling. The balance shows the cost of the part-finished stock on hand, and should agree with the total of the balances as shown in the detailed records of part-finished stock.
(6) Finished Stock Account
The Finished Stock account is kept in the same manner as the other stock accounts, being debited with the cost of the product transferred to finished stock, and also with the cost of any finished stock returned by customers. The account is credited with the cost of the product sold, the balance representing the cost of the finished stock on hand, which should agree with the total of the balances as taken from the detailed finished stock records.
(7) General or Private Ledger Account
This account serves a twofold purpose: first, as the connecting link between the cost records and the financial records; and second, as what may be termed the balancing account of the factory ledger. By means of this account a trial balance of the factory ledger may be prepared at the end of a cost period, which should prove the mathematical accuracy of the postings to the factory ledger, independently of the financial records.
This account is debited or credited as may be necessary when any information entering into the cost records is obtained from the financial records. For instance, when the material, labor or indirect expenses are summarized from the accounts payable vouchers in the factory ledger columns of the register of accounts payable, and the details of this factory ledger column are posted to the debit of the material, labor, and indirect expense accounts in the factory ledger, the General or Private Ledger account is credited. This procedure maintains the equilibrium of the factory ledger and also gives the general or private ledger credit for the expenditures which were incurred for the factory. On the other hand, when shipments of finished or part-finished stock are made, and the stock accounts in the factory ledger are credited, a charge is made to the General or Private Ledger account, for the reason that the merchandise has practically left the factory and the factory records as well, and is now included in the accounts upon the financial books. The balance of this General or Private Ledger account is generally a credit balance and should agree with the debit balance of the Factory Ledger account in the private or general ledger.
Illustrative Journal Entries
In concluding the description of the records for compiling cost data, it may be advisable to trace the more common entries through the journal, showing how the accounts in the factory ledger are affected. It should be borne in mind that these entries pertain only to the cost records, and are given merely to illustrate the entries which are most likely to be used, as it would be practically impossible to give entries covering every point under the specific conditions of various plants. Some of the entries which follow might be combined, thereby saving time in posting, but they are presented here in their simplest forms for the sake of greater clearness.
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