Accounting cycle in cost accounting

1. Cycles of cost accounting and records.

A unit of costs refers to the units of production or sale expressed as a measure according to the characteristics of the manufacturing and marketing processes. It is a measurement base that identifies quantities in physical terms. It generally coincides with that used in commercial transactions.

Manufacturing cost statement.

For its determination, a manufacturing cost statement is prepared, which summarizes the consumption of materials, labor and indirect costs and determines:

• Period costs.

• Costs of finished products.

• Costs of products sold.

In the cost statements the formula is used:

Cost of sales = initial existence + purchases - final existence

And it is used both to determine the consumption of materials and the costs of production sold and finished.

In general, control accounts are worked for each element of the production in process.

Cost flows and production cost accounts.

The flow of production costs follows the physical movement of raw materials as they are received, stored, spent, and converted into finished goods.

In a broad sense, the production cycle can be divided into three main phases:

1. Storage of raw materials.

2. Manufacturing process of raw materials in finished articles.

3. Storage of finished items, although in many companies the control of finished items is under the jurisdiction of the sales department, and therefore should not technically be considered as part of the production cycle.

Three general types of inventory accounts are used in cost accounting: raw materials, work in process, and finished items.

Charges to the work-in-process account consist of the three elements of manufacturing costs: raw materials used, direct labor, and manufacturing overhead. The costs of raw materials used and direct labor, which normally occur, are charged directly to the Work in Process account.

However, manufacturing overhead costs are first accumulated in a general ledger account titled Manufacturing Overhead Cost and then transferred or applied to the Work in Process account.

Raw material storage	Cost of incoming materials	Materials, inspection, reception and storage cost.

Raw material processing	Cost of materials used	Cost of materials used, direct labor and indirect manufacturing costs.

Storage of finished items	Cost of items produced	Cost of finished items, ready for sale to customers.

	Cost of items sold	customers

2. States of operation for a manufacturing company.

The flow of production costs results in statements of income, cost of sales and cost of manufactured items.

These statements can be prepared even when the company does not have a cost accounting. This can be accomplished by taking a physical inventory of raw materials, work in process, and finished items at the beginning and end of the period.

However, there are very serious limitations to this procedure. Accounting.

SUPPLIERS MATERIALS WAREHOUSE

For the purchase

BOX SUPPLIERS

For payment

LABOR

SALARIES TO BE PAID

WITHHOLDINGS

For accrual

WAGES TO PAY

CASH

For payment

INDIRECT MANUFACTURING COSTS

WAREHOUSE MATERIALS (IND.)

LABOR (IND.)

Due to indirect materials and labor

INDIRECT COSTS OF MANUFACTURE

MISCELLANEOUS ACCOUNTS

Imputation of rents, energy, maintenance, repairs, etc.

IND. COSTS MANUFACTURE (MACHINERY DEP.)

INDIVIDUAL COSTS MANUFACTURE (DEP. BUILDINGS)

DEP. ACCUMULATED MACHINERY

DEP. ACCUMULATED BUILDINGS

Due to depreciations

PRODUCTION IN PROCESS MATERIALS

WAREHOUSE MATERIALS

Due to the consumption of direct materials

PRODUCTION IN PROCESS LABOR

LABOR

By direct labor

PRODUCTION IN PROCESS CIF

INDIRECT COSTS OF MANUFACTURE

By the imputation of the CIF

FINISHED PRODUCTS

PRODUCTION IN PROCESS MATERIALS

PRODUCTION IN PROCESS LABOR WORK

PRODUCTION IN PROCESS CIF

For finished production

Trade receivables

SALES

For sales

COST OF

PRODUCTS SOLD FINISHED PRODUCTS

For the cost of products sold

SALES DEBT CASH

For the collection of sales

3. Accounting of raw materials.

When the materials are received, a reception guide is prepared, which indicates the types and quantities of materials received. A copy of the receipt guide is sent to the accounting department, where it is compared to the supplier's invoice. These two documents provide the basis for recording this liability and the corresponding payment. The supplier invoice also serves as the basis for recording the cost of materials received in the raw materials account.

After raw materials have been received and inspected, they are shipped to warehouses or warehouses. In many companies, the warehouse manager may also be in charge of all or selected materials. In such cases, the inventory account is often called a warehouse or materials and supplies rather than raw materials.

In addition to the net invoiced price of raw materials, related costs such as freight, receiving, inspection and warehousing can be fully added to the cost of raw materials. However, in attaching such costs to materials, some difficulties are encountered.

As raw materials are needed for production, the warehouse delivers them on the basis of a materials requisition form. The requisition of materials is the basis to credit the value of the materials used to the raw materials account and to load the products in process account. From a control point of view, this document also relieves the warehouse manager of his responsibility for these materials.

In a manufacturing company, records are generally kept in the warehouse or somewhere else. These records indicate for each type of raw material the quantities available at the beginning of the period, the entries, the exits and the remaining balances at the end of the period. These records are called perpetual inventories. They can also include the costs of different raw materials. In such a case, they are called book inventories. Accounting inventories constitute an auxiliary ledger, since the total costs of each individual raw material are equal to the balance that appears in the raw material control account of the general ledger.

Perpetual inventory records provide the purchasing department with the necessary information that allows it to place orders in such a way that they can minimize inventory investment and avoid the loss of potential quantity discounts, and also avoid production bottlenecks due to lack of material. It also contains the information necessary to plan and schedule production.

Accounting for produced and sold items.

In general, two cost accounting systems can be used, depending on the nature of manufacturing activities: process cost systems or order cost systems, in which the items produced are divided into batches, which they are called jobs or batches. An order cost sheet is used for each production batch, and each is listed or identified in some other similar way. All three elements of the cost of production are specifically and directly transferred to these jobs, day by day, as they occur. The order cost sheets serve as an auxiliary ledger for work in progress. The time period or department in which costs originate are of secondary importance in the accumulation of costs.An order cost system is necessary when items are produced according to individual customer specifications.

A manufacturing process cost system is employed when essentially standardized products are manufactured on a fairly continuous basis. The primary function is to assign the manufacturing cost elements to a department, cost center, or manufacturing process for a specified period of time, such as a day, a week, or a month. The department's cost sheets serve as the auxiliary ledger for work in progress. Unit costs of producing a department can be calculated at the end of the time period when both incurred costs and quantities produced are already known.

In a manufacturing process cost system, the product typically goes through a series of successive operations. The unit and total cost of the finished articles is transferred to the next manufacturing process.

Material requisitions provide the basis for charging the cost of materials used to the Work in Process (control) account and to the cost sheets of the subsidiary departments or work orders.

The total amount of direct labor and its distribution among the different departments and jobs is obtained from the clock marker cards and the time tickets. The clock marker card reveals the number of hours worked by each worker. The number of hours elapsed multiplied by the hourly wage rate results in the gross amount of the cost of direct labor (or indirect labor) for each employee. The time tickets indicate how the time worked is distributed by each worker during the day.

An indirect cost distribution analysis is a form that is used to assign the total manufacturing indirect costs to the different departments and to establish a base, that is, a rate to assign the indirect costs to the different works carried out.

Overhead factory and work-in-process cost accounts can be kept for each department or cost element.

The general ledger manufacturing cost account (or accounts) is almost always backed by an auxiliary ledger indicating the amount of each type of expense. The work in progress account (s) is also supported by work order cost or department cost sheets. When a job has been completed, the cost sheet is added and closed. The total amount that appears on the work cost sheet is downloaded from the work in process account and debited to the finished items account, which corresponds to the cost of the finished work.

In a manufacturing process cost system, the cost sheets of the subsidiary department indicate the cost of finished products and transferred to the subsequent department. Proof of delivery is used to transfer the cost of finished items from one department to another or to the finished item depot.

As the finished items are sold and delivered to customers, the responsibility for these items (which have now received the manufacturing cost premium to set the selling price) is transferred from the finished item storage function to the accounts receivable and collections. Sales invoices and bills of lading are the documents that prove this transfer of responsibility and also provide the basis for recording cash inflows and accounts receivable. The bill of sale and the bill of lading also constitute the necessary documentation to credit the cost of manufacturing the items sold from the finished items account and charge them to the cost of items sold account.

4. Factory ledger.

Examples of the use of this technique are found in cost accounting and also in joint branch and principal accounting.

The factory ledger is a registration system that divides the general and cost accounting, always maintaining its integrity, it is applied in companies where there is a physical or functional separation between the administration and the factory.

But it is also used in the absence of such a separation, if for the purposes of control it is necessary to have specific information on the functions: administration and manufacturing.

Each system (general and cost) is linked through a bridge account that in each accounting is called: