Journal Entries

Journal Entries

The assignment involves preparing journal entries related to various accounting events for Lock-Down Company, which produces security products using a job order cost system. It includes recording multiple transactions such as raw materials purchases, factory payroll, overhead costs, and sales, along with calculations involving predetermined overhead rates, cost transfers, and adjustments for over- or under-applied overhead. Specific tasks include journal entries for May events, analyzing costs on job sheets, calculating overhead rates, and preparing financial statements and reconciliations, including balance sheets, income statements, and production cost reports based on various scenarios and detailed data.

Paper For Above instruction

The dataset provided describes a comprehensive accounting scenario for Lock-Down Company, emphasizing the recording and analysis of manufacturing costs, journal entries, and financial statements within a job order costing system. The primary aim is to reinforce understanding of the application of manufacturing accounting principles, including the correct journal entries, overhead rate calculations, and preparation of financial reports.

Initial journal entries often involve recording raw materials purchases, factory payroll, and manufacturing overhead costs. For May, cash payments for raw materials and payroll, as well as indirect materials, indirect labor, and other overhead expenses, need to be properly journalized. For example, raw materials purchased on credit should be debited to Raw Materials Inventory, and factory payroll paid in cash should be debited to Factory Payroll. Indirect costs like indirect materials and indirect labor usually debit Factory Overhead accounts, while actual overhead costs are accumulated for allocation.

A key concept in this context is the predetermined overhead rate based on direct labor costs. Calculating this rate involves dividing estimated overhead costs by estimated direct labor costs for the year. For Rent, utilities, and depreciation, actual expenses accrued during the period are debited to appropriate expense or asset accounts, and applied overhead is credited to Factory Overhead as a credit entry. Overhead application allocates overhead to jobs based on direct labor costs multiplied by the predetermined rate.

During the month, as jobs are finished, costs transferred from Work in Process to Finished Goods are recorded. When jobs are sold, cost of goods sold is debited, and inventory accounts are adjusted accordingly. Adjustments for over- or under-applied overhead are performed at period-end, either allocating the variance to cost of goods sold or prorating among inventories to reflect actual costs.

The scenario also emphasizes analyzing job cost sheets, calculating costs for individual jobs, and allocating indirect costs. For example, tasks include calculating the cost of raw materials requisitioned per job, direct labor costs incurred, overhead applied using the predetermined rate, and the total costs assigned to each job, both finished and in process.

Financial statement preparation is integral, requiring calculation of total manufacturing costs, cost of goods manufactured, and gross profit—derived from sales and cost of goods sold. Inventory balances on the balance sheet capitalize raw materials, work in process, and finished goods, emphasizing the importance of accurate valuation and proper classification of assets.

Reconciliation of overhead involves comparing actual overhead to applied overhead to identify over- or under-applied amounts. The year-end adjustment considers these variances, with journal entries to close the under- or over-applied overhead to cost of goods sold. These adjustments affect profit measurement and inventory valuation.

The scenarios extend to complex calculations, including revising trial balances with corrected account balances, and preparing comprehensive financial reports such as income statements and balance sheets to reflect actual financial positions. Emphasis is placed on correctly grouping assets, liabilities, equity, revenues, and expenses while maintaining accurate and consistent application of accounting principles.

Throughout, the importance of precise documentation, journalization, and analysis is underscored, providing practical experience in manufacturing cost accounting, internal control, and financial reporting.

References

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  • Nelson, J. J. (2020). Cost Accounting: A Managerial Emphasis. Pearson.
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