Job&BatchCosting L5 Updated

Chapter 5: Accounting Entries for a Job Costing
System
1)Recording accounting entries for integrated
accounting systems
Job / batch costing vs. Process costing
2 basic systems co.s adopt
Job / batch costing Process costing

• Each unit / batch of output of a • Masses of identical units are
product is unique produced
• Hence there is a need for the cost of • Products are produced in same
each unit to be calculated separately manner and consume same amount
• Eg. Accounting & legal firms of resources
provide customised services, each • Hence it is unnecessary to assign
client consumes different amount of costs to individual units, instead an
resources. Engineering and average cost per unit of output is
construction co.s manufacture calculated
according to individual customer • I.e. total costs assigned to product
specifications no. of units of output
• Eg. chemical processing; oil refining;
food processing; brewing co.s
Accounting system applied
Integrated cost accounting system Interlocking cost

accounting system
 Cost & financial accounts are Cost & financial accounts are
combined in 1 set of accounts maintained separately
 Preferable as no duplication Not as preferable as there is

of accounting entries duplication of accounting entries
in cost a/cs & financial a/cs
Hence concentration here is on Integrated cost

accounting system!
Materials recording procedure (exh.4.1&4.2 in text)
Goods (stock) received from supplier are inspected and
recorded in goods received note (i.e source document)
These details are transferred to the stores ledger account
When materials need to be used for a particular job,

product or consumed in overheads, the stores requisition
is used to issue out the materials. This detail is also cross-
referenced in the stores ledger account
The balance of materials in the stores ledger account is

then calculated (i.e. receipt – issues = balance)
1) Recording accounting entries for
an integrated accounting system
Example
The following are the transactions of AB Ltd for the month
of April.
1.Raw materials of £182 000 were purchased on credit.

2.Raw materials of £2 000 were returned to the supplier
because of defects.
3.The total of stores requisitions for direct materials issued
for the period was £165 000.
4.The total issues for indirect materials during the period
was £10 000.
an integrated accounting system(cont’d)
5. Gross wages of £185 000 were incurred during the

period consisting of:
Wages paid to employees £105 000
Tax deductions payable to Ind.Rev. £ 60 000
National insurance contributions due £ 20 000
6. All the amounts due in transaction 5 were settled by cash
during the period.
7. The allocation of the gross wages for the period was as
follows:
Direct wages £145 000
Indirect wages £ 40 000
8. The employer ’s contribution for national insurance

deductions was £25 000.
9. Indirect factory expenses of £41 000 were incurred during
the period.
10. Depreciation of factory machinery was £30 000.
11. Overhead expenses charged to jobs by means of factory
overhead absorption rates was £140 000 for the period.
12. Non-manufacturing overhead incurred during the period
was £40 000.
13. The cost of jobs completed and transferred to finished

goods stock was £300 000.
14. The sales value of goods withdrawn from stock and
delivered to customers was £400 000 for the period.
15. The cost of goods withdrawn from stock and delivered
to customers was £240 000 for the period.
Recording journal entries & accounting entries
Purchase of raw materials

Dr Stores ledger control account 182 000
Cr Creditors control account 182 000
Return of raw materials

Dr Creditors control account 2 000
Cr Stores ledger control account 2 000
Issue of direct materials

Dr Work in progress control account 165 000
Issue of indirect materials

Dr Factory overhead control account 10 000
Stores ledger control account
1. Creditors a/c 182 000 2.Creditors a/c 2 000

a
3.Work in progress a/c 165 000
4.Factory overhead a/c
10 000
Balance c/d 5 000
182 000 182 000
Balance b/d 5 000
Recording labour costs payable
Dr Wages control account 185 000
Cr Inland Revenue account 60 000
Cr National insurance contribution acct. 20 000
Cr Wages accrued account 105 000
All the amounts are settled by cash in the period
Dr Inland Revenue account 60 000

Dr National insurance contribution acct. 20 000
Dr Wages accrued account 105 000
Cr Cash/Bank 185 000
Recording the allocation of labour costs

Dr Work in progress account 145 000
Cr Wages control account 185 000
Recording the employer ’s national insurance

contribution
Cr cash/bank 25 000
Wages control account
5. Wages accrued a/c 105 000 7.Work in progress a/c 145 000
5. PAYE tax a/c 60 000 7.Factory overhead a/c
40 000
5. National Insurance a/c
20 000 ______
185 000 185 000

Recording the overheads incurred

Cr Expense creditors control account 41 000
Cr Provision for depreciation 30 000
Recording the allocation of overheads to production

Dr Work in progress control a/c 140 000
Cr Factory overhead control a/c 140 000
Note that the balance of the factory overhead account

represents the under or over-recovery of overhead that is
transferred to the Costing Profit and Loss account. In this
eg. there is an under recovery of o/h of £6 000 (£146 000 -
£140 000).
Recording non-manufacturing overheads incurred
Dr Non-manufacturing overheads a/c 40 000
Cr Expense creditors a/c 40 000
Dr Profit and loss account 40 000

Cr Non-manufacturing overheads a/c 40 000
Production / jobs completed during the period

Dr Finished goods stock account 300 000
Cr Work in progress control account 300 000
Recording sales and cost of goods sold (product sold)

Dr Debtors control account 400 000
Cr Sales account 400 000
Dr Cost of sales account 240 000

Cr Finished goods stock account 240 000

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Chapter 5: Accounting Entries for a Job Costing

2 basic systems co.s adopt

Job / batch costing Process costing

Accounting system applied

Integrated cost accounting system Interlocking cost

 Preferable as no duplication Not as preferable as there is

Hence concentration here is on Integrated cost

These details are transferred to the stores ledger account

When materials need to be used for a particular job,

The balance of materials in the stores ledger account is

1.Raw materials of £182 000 were purchased on credit.

5. Gross wages of £185 000 were incurred during the

8. The employer ’s contribution for national insurance

13. The cost of jobs completed and transferred to finished

Purchase of raw materials

Return of raw materials

Issue of direct materials

Issue of indirect materials

Stores ledger control account

1. Creditors a/c 182 000 2.Creditors a/c 2 000

All the amounts are settled by cash in the period

Dr Inland Revenue account 60 000

Recording the allocation of labour costs

Recording the employer ’s national insurance

Wages control account

185 000 185 000

Recording the overheads incurred

Dr Factory overhead control account 71 000

Recording the allocation of overheads to production

Note that the balance of the factory overhead account

Dr Profit and loss account 40 000

Production / jobs completed during the period

Recording sales and cost of goods sold (product sold)

Dr Cost of sales account 240 000

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