1. Completing the Cost Cycle and Accounting for Lost Materials
Chapter 10
Completing the Cost Cycle and Accounting for Lost Materials

2. Introduction Last steps in the job order cost accounting cycle:
Accounting for the completion of goods
Accounting for the sale of goods

3. Completing the Cost Cycle
When goods are completed
Cost of completed jobs is transferred from the Work in Process to Finished Goods account in the general ledger
When goods are sold
Cost of finished goods sold is transferred to Cost of Goods Sold account

4. Recording Completion of Jobs
Final entries are recorded in the job cost sheet:
All columns as totaled and amounts entered in the summary section
Total costs are computed and entered
Unit cost determined and recorded

5. Recording Completion of Jobs (cont’d)
Completed jobs journal
Total is debited to Finished Goods and credited to Work in Process
Proving the job cost ledger
Prepared in the form of a schedule of work on process; lists uncompleted jobs and costs assigned to it
Finished goods ledger
Consists of a stock ledger card for each type of product the firm manufactures for stock

6. Recording Sales of Finished Goods
Sales from stock
Sales invoice is sent to the warehouse
Entry made to show sale and balance of goods
Sales journal is updated

7. Recording Sales of Finished Goods (cont’d)
Sales of custom orders
Goods are shipped directly and entry made in the sales journal; never enter warehouse stock
At the end of the month, column totals of sales journal posted to general ledger accounts
2006
Accounts Receivable
111
October
Sales
401
Recorded sales for month
Cost of Goods Sold
415
Finished goods
126
Recorded cost of goods sold during October

8. Recording Sales of Finished Goods (cont’d)
Proving the finished goods account
Prepare a schedule of finished goods from the subsidiary ledger to prove it to the control account
Periodic inventories of finished goods taken.
Shortages are charged to Cost of Goods Sold

9. Manufacturing Costs on Financial Statements
Reported in the form of a summary total in Cost of Goods Sold section of the income statement
Manufacturing overhead applied is shown on statement of cost of goods manufactured
Overhead details appear on the schedule of manufacturing overhead

10. Scrap, Spoiled, and Defective Goods
Losses of materials occur as an inevitable part of normal operations
Materials loss takes the form of:
Scrap
Spoiled goods
Defective goods
Accounting technique varies according to the type of loss involved

11. Accounting for Scrap Scrap - residue of manufacturing process
Low-value scrap
Sold at irregular intervals; no entry is made until scrap is sold
Credit to miscellaneous income
Credit to a specific job
Credit to manufacturing overhead

12. Accounting for Scrap (cont’d)
High-value scrap
Requires special care in control and storage and preparation of a scrap report
Fluctuating value
Stable value
Sale of different value

13. Accounting for Spoiled Goods
Products that do not meet the required standards
Can occur in batches or isolation
May be sold as seconds
May be discarded in some instances

14. Accounting for Spoiled Goods (cont’d)
Loss charged to manufacturing overhead
Spoiled goods report
General journal entry
Record loss on the overhead analysis sheet
Credit to work in process is recorded in job cost sheet
Loss absorbed in the cost of a specific job
Reduction of cost elements
Reduction of total cost

15. Accounting for Defective Goods
Products that do not meet standards but can be reworked with additional cost.
Rework costs charged to manufacturing overhead
Allows costs of rework to be accumulated and reported
Rework costs charged to a specific job
No special accounting procedures necessary
Unit cost may vary from job to job