PRINCIPAL ACCOUNTS

 Principal Accounts

The main accounts which are usually prepared when a separate Cost Ledger is maintained are as follows:

(1) Cost Ledger Control Account - This account is also known as General Ledger Adjustment Account. This account is made to complete double entry. All items of expenditure are credited to this account. Sales are debited to this account and net profit/loss is transferred to this account. The balance in this account at the end of the particular period represents the net total of all the balances of the impersonal account

(2) Stores Ledger Control Account –This account is debited for the purchase of material and credited for issue of materials from stores. The balance in this account indicates the total balance of all the individual stores accounts. Abnormal losses or gains if any in this account, are transferred to Costing Profit & Loss Account. Entries are made on the basis of goods received notes and stores requisitions etc.

(3) Wages Control Account - This account is debited with total wages paid (direct and indirect). Direct wages are further transferred to Work-in-Process Control Account and indirect wages to Production Overhead; Administration Overhead or Selling & Distribution Overhead Control Accounts, as the case may be. Wages paid for abnormal idle time are transferred to Costing Profit & Loss Account either directly or through Abnormal Loss Account.

(4) Manufacturing/Production/Works/ Factory Overhead Control Account - This account is debited with indirect costs of production such as indirect material, indirect employee, indirect expenses (carriage inward etc.). Overhead recovered is credited to this Account. The difference between overhead incurred and overhead recovered (i.e. Under Absorption or Over Absorption of Overheads) is transferred to Overheads Adjustment Account.

(5) Work-in-Process Control Account - This account is debited with the total cost of production, which includes—direct materials, direct employee, direct expenses, production overhead recovered, and is credited with the amount of finished goods completed and transferred. The balance in this account represents total balances of jobs/works-in-process, as shown by several job accounts.

(6) Administrative Overhead Control Account - This account is debited with overhead incurred and credited with overhead recovered. The overhead recovered are debited to Finished Goods Control Account, if administrative overhead is related with production activities otherwise to Cost of Sales A/c. The difference between administrative overheads incurred and recovered is transferred to Overhead Adjustment Account.

(7) Finished Goods Control Accounts - This account is debited with the value of goods transferred from Work-in-process Control Account, administration costs recovered (if relates to production activities). This account is credited with Cost of Sales Account. The balance of this account represents the value of goods lying at hand.

(8) Selling and Distribution Overhead Control Account - This account is debited with selling and distribution overheads incurred and credited with the selling and distribution overheads recovered. The difference between overheads incurred and recovered is transferred usually to Overhead Adjustment Account.

(9) Cost of Sales Account - This account is debited with the cost of finished goods transferred from Finished Goods Control Account for sale, Administrative overhead recovered, Selling and distribution overhead recovered. The balance of this account is ultimately transferred to Sales Account or Costing Profit & Loss Account.

(10) Costing Profit & Loss Account – This account is debited with cost of goods sold, under-absorbed overheads and abnormal losses and is credited with sales value, over-absorbed overhead and abnormal gains. The net profit or loss in this account is transferred to Cost Ledger Control Account.

(11) Overhead Adjustment Account - This account is to be debited for under- recovery of overhead and credited with over-recovery of overhead amount. The net balance in this account is transferred to Costing Profit & Loss Account.

Note: Sometimes, Overhead Adjustment Account is dispensed with and under/over absorbed overheads is directly transferred to Costing Profit & Loss Account from the respective overhead accounts.