Professional Documents
Culture Documents
materials invoices are received, the goods are produced, costs are calculated, and the products are sold at a rate that covers the expenses. All the recordings in the companys accounting books are made at that point and the books are kept balanced and factual without making multiple postings all through the production process. 4. There are two drawbacks of this costing method. The Backflush costing is a concept that is not widely considered to be in compliance with generally accepted accounting principles. It also lacks the sequential audit trail.
Finished goods manufactured during the period Sales 145 Standard cost per unit Materials Labour Overhead 20 15 9 44
There were no opening stocks of raw materials, WIP or finished goods. It should be assumed that there are no direct materials variance for the period. Variant 1 : The double entry would be as followsDr. 000 1. RIP account Creditor 4,250 4,250 Cr. 000
2. CC account Cash Cash/ creditor 3. FG account (180 X 44) RIP account (180 X 20 ) CC account (180 X 24 )
Raw and in process materials 000 000 Creditor 4,250 4,250 Bal b/d 650 FG Bal c/d 3,600 650 4,250
Conversion costs 000 000 Cash/creditor 4,440 4,440 Bal b/d FG Bal c/d 4,320 120 - 4,440
120 Finished goods 000 000 RIP CC 3,600 4,320 COGS Bal c/d 6,380 1,540
7,920
The stock balances at the end of March would be 000 650 1,540 2,190 The balance on the conversion cost account would be carried forward and written off at the end of the year. Raw and in process materials Finished goods Variant 2 : The accounting entries where there is only one trigger point completion of units) would be simpler. DR CR 000 000 1. CC account Cash Cash/creditors 2. FG account (180 X 44 ) Creditors (180 X 20 ) CC account (180 X 24 ) 3. COGS FG account 4,440 2,800 1,640 7,920 3,600 4,320 6,380 6,380 (on
This variant is thus only suitable for JIT system with minimal raw materials stocks.