Cost Ledger and Its Control Accounts (With Journal Entries)
In cost books two kinds of ledgers are kept:
(i) Principal ledger or cost ledger and
(ii) Subsidiary ledger.
In the principal ledger all impersonal accounts are kept.
(a) General Ledger Adjustment Account and
(b) Control Accounts for subsidiary ledger.
In subsidiary ledger the accounts kept are:
(a) Stores ledger in which separate accounts are opened for each item of stores
(b) Work-in-progress ledger which accounts of each job or batch or process and
(c) Finished goods ledger which has accounts of finished goods.
It is to be noted that following Control Accounts are opened for each subsidiary ledger in the cost ledger along with General Ledger Adjustment or Control Account:
(1) Stores Ledger Control Account
(2) Work-in-Progress Ledger Control Account
(3) Finished Goods Control Account.
Besides above, there are certain other control accounts related to impersonal account.
(4) Wages Control Account
(5) Factory Overhead Control Account
(6) Office Overhead Control Account
(7) Selling and Distribution Overhead Control Account
(8) Cost of Sales Account
(9) Costing Profit and Loss Account
(10) Overhead Suspense’s Account
General Ledger Adjustment or Control Account [Cost Ledger Control Account]:
No personal accounts are kept in the cost books but as the cost books are maintained on the principle of double entry, all transactions which arise in the financial accounts are debited or credited to General Ledger Control Account maintained for this purpose. This account makes the cost ledger self-balancing. Basically, this account represents personal or cash or Bank
Accounts in the financial books:
For example, materials purchased against cash is debited to Stores Ledger Control Account and credited to General Ledger Control Account.
Stores Ledger Control Account:
It deals with transactions of materials. All receipts are debited and issues are credited, the balance shows the stock of raw materials.
Work-in-Progress Ledger Control Account:
This account is debited with the opening balance of work-in-progress, materials, labour and factory overhead costs (recovered) and is credited with the cost of finished goods. Balance will be closing work-in-progress.
Finished Goods Control Account:
This account is debited with the opening balance of finished goods, the cost of finished goods for the period transferred from the Work-in-Progress Control Account and the amount of administrative overhead recovered. The goods sold are credited from Finished Goods Control Account to Cost of Sales Account. The closing balance will show unsold stock carried over.
Wages Control Account:
It records labour transactions. The account is debited with the gross wages and is credited by the transfer of direct labour to work-in-progress and indirect labour to Factory. Administration and Selling and Distribution Overhead Control Account.
Factory Overhead Control Account:
It deals with manufacturing overhead expenses. It is debited by the amount of indirect material, indirect labour and indirect expenses incurred. This account is credited by the amount of overhead recovered.
Office Overhead or Administration Overhead Control Account:
Administrative overhead cost is debited to this account; the amount of overhead recovered in the finished goods sold is credited to this account. It may be, alternatively, transferred to Costing Profit and Loss Account if it is not charged to Cost of Goods Sold.
Selling and Distribution Overhead Account:
In this account selling and distribution costs are debited and it is credited by transfer to Cost of Sales Account by recovered selling and distribution overheads.
Cost of Sales Account:
This account is debited with the cost of goods sold and selling and distribution overhead recovered and is closed by transfer to Costing Profit and Loss Account.
Costing Profit and Loss Account:
This account records the transfer of amounts of under and over absorbed overheads, the sale value of goods sold, and the balance from the Cost of Sales Account. Abnormal losses or gains are debited and credited to this account. The closing balance of this account represents the costing profit or loss. The costing profit and loss is reconciled with the profit or loss shown by the financial profit or loss.
Overhead Suspense or Adjustment Account:
In this account under or over absorbed overheads (of factory, administration and selling and distribution) are debited or credited. The balance of this account, if carried to next period will be shown as balance, if not carried to next period will be transferred to Costing Profit and Loss Account, if charged as subsidiary rate to production transferred to Cost of Sales Account (on units sold), Work-in-Progress (on units incomplete) and to Finished Goods sold (on units not sold) Sometimes this account is not maintained and the amount of under or over absorbed overheads is transferred direct to Costing Profit and Loss Account.
Entries in Control Accounts:
ILLUSTRATION 1. Following transactions took place for the month of March in ABC Co. Ltd. Enter the transactions in the Cost Books.
ILLUSTRATION 2. Enter the following transactions of ABC Co. Ltd. for the month of March, in the Costing Books, pertaining to Labour.
ILLUSTRATION 3. Pass Journal entries in the Costing Books from the information regarding' overheads given below
ILLUSTRATION 4. Following balances appeared in the books of M.K. Co. Ltd. on 1st January, 2011 :
You are required to record the entries in cost ledger for the year 2011 and prepare a Trial Balance.
ILLUSTRATION 5. Following balances are shown in the cost ledger of Vinak Ltd. as on 1st April, 2011.