ADVANCE COSTING

CLASS -2

Chapter: Cost Accounting Records Costing department is concerned with Income and Expenditure relating to business carried on. Here

transactions are recorded into on the basis of double entry book keeping principal – every debit must have a corresponding credit. It is generally the responsibility of the Cost Accountant to record the costing transactions.

Advantages of Cost Accounting: a) Cost control accounts summarise masses of detailed information contained in subsidiary

records. The control accounts re very valuable to management in policy formulation. b) It facilates prompt preparation of costing profit and loss account and helps management to

know results of operations of the firm. c) A system of internal check exists through the use of various control accounts. This helps

detecting errors and thus maintaining accuracy. d) When cost accounts are separately maintained, it is possible to maintain confidentiality of

cost data. e) When cost and financial accounts are maintained separately, they help reconciliation of

costing profit and loss with that as per financial accounts.

Journal Entries: Material Purchase tk. 20,000 (cash or credit) Debit materials control account – 20,000 Credit Cost ledger Account - 20,000 ii) Debit Sore ledger Control Account – 20,000 Credit materials control Account - 20,000 Purchase for special job Tk. – 1000 Dr. Work in Progress Ledger Control Account – 1000 Cr. Cost Ledger Control Account - 1000 Return to Creditors - 1000 Dr. Cost Ledger control Account - ----1000 Cr. Store Ledger control Account - 1000 Materials Issued to Production: Direct - 5000 Indirect (production) - 500 --------- 5500 Dr. Work in progress control account 5000 Cr. Store Ledger Control Account 5000 Dr. Production Overhead A/c 500 Cr. Store Ledger control Account 500

Ledgers to be maintained: Cost Ledger – This is the principal ledger and records nominal accounts and to some extent real

accounts. Store Ledger – Store accounts for various types of stores are maintained Work in progress ledger – Records are being made of each type of ob undertaken, cost incurred

therefore, and production during the period. Finished Goods Ledger – Contains separate accounts for each type of job/ work completed. Principal Accounts: Cost Ledger Control Account Store Ledger Control Account Work in Progress Control Account Finished Goods Control Account Wages Control and Clearance Account Manufacturing Overhead Account Administrative Overheads Account Selling and Distribution Overhead account Overhead Adjustment Account Cost of Sales Account Costing Profit and loss Account

Return from Shop to Store – Tk.300 Transfer from job no 10 to 13 200

Dr. Store Ledger control Account -300 Cr. Work in progress Control Account -300 Dr. Job no 13 -200 Cr. Job no 10 -200 Stores Issued o factory repair order: - Tk. 20 Dr. Production Overhead A/c -20 Cr. Store Ledger control Account -20 II) Labor: Wages Paid Direct 5000 Indirect: Production 700 Administration 500 Selling and Distribution 300 1500 -------- 6500 ------- i) Dr. Wages clearance A/c 6500 Cr. Cost Ledger Control Account 6500

ii) Dr. Work in Progress Control Account 5000 Cr. Wages Clearance Account 5000 iii) Dr. Production Overhead A/c 700 Dr. Administrative Overhead Account 500 Dr. Selling & Distribution Overhead Account 300 Cr. Wages Clearance Account 1500 III) Direct Expenses; Tk. 1000 for job no -23 Dr. Work in Progress Control A/c 1000 Cr. Cost Ledger Control A/c 1000 IV) Overhead:

a) Petty Expenses: Production 50 Administration 30 Selling & Distribution 20 100 Dr. Production Overhead A/c 50 Dr. Administration Overhead A/c 30 Dr. Selling & Distribution Overhead A/c 20 Cr. Cost Ledger Control A/c --- 100 b) Carriage inwards on stores issued for production -

10 Dr. Production Overhead A/c 10 Cr. Cost Ledger control A/c 10 c) Production Overhead recovered - 1800 Dr. Work in progress control A/c -1800 Cr. Overhead Adjustment A/c -1800