Accounting 4

expense recognition principle

(also, matching principle) matches expenses with associated revenues in the period in which the revenues were generated

Costs from the materials requisition sheet and time tickets are recorded on the job cost sheet. Overhead is allocated from the manufacturing overhead account to the individual jobs and recorded on the job cost sheet. Each job has its own job cost sheet, showing the materials, labor, and overhead for each job.

Costs from the materials requisition sheet and time tickets are recorded on the job cost sheet. Overhead is allocated from the manufacturing overhead account to the individual jobs and recorded on the job cost sheet. Each job has its own job cost sheet, showing the materials, labor, and overhead for each job.

Direct materials are requested on a materials requisition form and recorded on the job cost sheet when transferred from raw materials inventory to the work in process inventory. Time tickets are used to accumulate the labor associated with particular jobs and assigned to those jobs on the job cost sheet. Manufacturing overhead costs are accumulated in the manufacturing overhead account and assigned to the individual jobs using the predetermined overhead rate.

Direct materials are requested on a materials requisition form and recorded on the job cost sheet when transferred from raw materials inventory to the work in process inventory. Time tickets are used to accumulate the labor associated with particular jobs and assigned to those jobs on the job cost sheet. Manufacturing overhead costs are accumulated in the manufacturing overhead account and assigned to the individual jobs using the predetermined overhead rate.

Expenses are recognized when they have a direct relationship with the associated revenue, when there is a systematic and rational method to allocate them, or immediately when there is no expected benefit. The estimated activity base is typically direct labor dollars or direct labor hours, and is based on an allocation base that increases or decreases as overhead increases or decreases. The predetermined overhead rate is the estimated overhead divided by the activity base.

Expenses are recognized when they have a direct relationship with the associated revenue, when there is a systematic and rational method to allocate them, or immediately when there is no expected benefit. The estimated activity base is typically direct labor dollars or direct labor hours, and is based on an allocation base that increases or decreases as overhead increases or decreases. The predetermined overhead rate is the estimated overhead divided by the activity base.

Job cost sheets record the material, labor, and overhead costs for each job, whereas journal entries actually transfer the costs into the work in process inventory, the finished goods inventory, and cost of goods sold.

Job cost sheets record the material, labor, and overhead costs for each job, whereas journal entries actually transfer the costs into the work in process inventory, the finished goods inventory, and cost of goods sold.

Job order costing (JOC) is the optimal costing method for producing custom goods or when it is easy to identify the cost directly with the product. A JOC system assigns costs to each individual job as the costs are incurred, so that at all points in the manufacturing process, the costs assigned to that particular job are known.

Job order costing (JOC) is the optimal costing method for producing custom goods or when it is easy to identify the cost directly with the product. A JOC system assigns costs to each individual job as the costs are incurred, so that at all points in the manufacturing process, the costs assigned to that particular job are known.

Job order costing can be used in nonmanufacturing companies and with the same techniques, even though there are not any inventory accounts.

Job order costing can be used in nonmanufacturing companies and with the same techniques, even though there are not any inventory accounts.

Materials used in production include the beginning raw materials inventory and purchases, less the ending inventory. This amount is the amount added to the work in process inventory. The cost of goods manufactured includes the beginning work in process inventory, the materials used in production, the direct labor assigned to each job, and the manufacturing overhead costs assigned, less the costs remaining in the work in process inventory. This amount is transferred to the finished goods inventory. The cost of goods sold include the beginning finished goods inventory and the cost of goods manufactured during the period, less the ending inventory. When the job is completed, the costs are transferred from the work in process inventory to the finished goods inventory. When the jobs are sold, the costs are transferred from the finished goods inventory to the cost of goods sold.

Materials used in production include the beginning raw materials inventory and purchases, less the ending inventory. This amount is the amount added to the work in process inventory. The cost of goods manufactured includes the beginning work in process inventory, the materials used in production, the direct labor assigned to each job, and the manufacturing overhead costs assigned, less the costs remaining in the work in process inventory. This amount is transferred to the finished goods inventory. The cost of goods sold include the beginning finished goods inventory and the cost of goods manufactured during the period, less the ending inventory. When the job is completed, the costs are transferred from the work in process inventory to the finished goods inventory. When the jobs are sold, the costs are transferred from the finished goods inventory to the cost of goods sold.

Overhead is allocated to individual jobs based on the estimated overhead costs for the year and may be overapplied or underapplied for the year. Overhead is underapplied when not all of the costs accumulated in the manufacturing overhead account are applied during the year. Overhead is overapplied when more overhead is applied to the jobs than was actually incurred. The amount of overhead overapplied or underapplied is adjusted into the cost of goods sold account.

Overhead is allocated to individual jobs based on the estimated overhead costs for the year and may be overapplied or underapplied for the year. Overhead is underapplied when not all of the costs accumulated in the manufacturing overhead account are applied during the year. Overhead is overapplied when more overhead is applied to the jobs than was actually incurred. The amount of overhead overapplied or underapplied is adjusted into the cost of goods sold account.

cost driver

activity that is the reason for the increase or decrease of another cost; examples include labor hours incurred, labor costs paid, amounts of materials used in production, units produced, machine hours, or any other activity that has a cause-and-effect relationship with incurred costs

manufacturing overhead

costs incurred in the production process that are not economically feasible to measure as direct material or direct labor costs; examples include indirect material, indirect labor, utilities, and depreciation

prime costs

direct material expenses and direct labor costs

job cost sheet

document created for each job that includes all material, labor, and overhead costs for that job

time ticket

document used to record the particular job worked on by each employee

cost of goods sold

expense account that houses all costs associated with getting a product ready for sale

materials requisition form

form showing which specific raw materials and costs are transferred from raw materials inventory to work in process inventory

job order costing

information system that traces the individual costs directly to the final product and not to production departments

direct labor

labor directly related to the manufacturing of the product or the production of a service

indirect labor

labor not directly involved in the active conversion of materials into finished products or the provision of services

cost of goods manufactured

manufacturing costs incurred less the ending work in process inventory

indirect materials

materials used in production but not efficiently traceable to a specific unit of production

direct materials

materials used in the manufacturing process that can be traced directly to the product

operating overhead

overhead account used for service industries

loss leader

product sold at a price that is often less than the cost of producing it in order to entice customers to buy accessories that are necessary for its use

overapplied overhead

situation when the overhead applied to the individual jobs is greater than the actual overhead; when overhead is overapplied, the manufacturing overhead has a credit balance

underapplied overhead

situation when the overhead applied to the individual jobs is less than the actual overhead; when overhead is underapplied, the manufacturing overhead has a debit balance

estimated activity base

total amount of the activity for the year

manufacturing costs

total of all costs expended in the manufacturing process; generally consists of direct material, direct labor, and manufacturing overhead

conversion costs

total of labor and overhead for a product; the costs that "convert" the direct material into the finished product

period costs

typically related to a particular time period instead of attached to the production of an asset; treated as an expense in the period incurred (examples include many sales and administrative expenses)