Production order - Direct Cost apply/Overhead cost

kenl

Hello,

Does anyone can explain the posting entry when we finish output journal in production order?

When we post consumption journal, NAV will
Dr: WIP (BS)
Cr: Inventory- RM (BS)

After we post output journal, NAV will
Dr: WIP (BS)
Cr: Direct Cost applied Account (P&L)

When ending production order, NAV will
Dr: Inventory - FG (BS)
Cr: WIP (BS)

So the NET effect will be:

Dr: Inventory - FG (BS)
Cr: Direct Cost applied Account (P&L)
Cr: Inventory- RM (BS)

For the direct cost applied account, since it is the work center cost, and I think it should be a expense account. So why does NAV "Credit" an expense account? Should we "Debit" the expense account?

i4tost

In that account usually goes salary, depreciation...
So this is credit. If you want, you can always debit

AdamRoue

Think of it as a labour offset, however you are in charge of where it goes, so ask the accountant where they want to see it

ayhan06

kenl wrote:

Hello,

Does anyone can explain the posting entry when we finish output journal in production order?

When we post consumption journal, NAV will
Dr: WIP (BS)
Cr: Inventory- RM (BS)

After we post output journal, NAV will
Dr: WIP (BS)
Cr: Direct Cost applied Account (P&L)

When ending production order, NAV will
Dr: Inventory - FG (BS)
Cr: WIP (BS)

So the NET effect will be:

Dr: Inventory - FG (BS)
Cr: Direct Cost applied Account (P&L)
Cr: Inventory- RM (BS)

For the direct cost applied account, since it is the work center cost, and I think it should be a expense account. So why does NAV "Credit" an expense account? Should we "Debit" the expense account?

Direct Cost applied Account (P&L) is credited because it has been debited before.

i mean this account is debited when your invoices about work center is issued or labor salaries is booked. so, to add labor costs etc to cost of finished items, this account should be credited. this is basic cost acoounting rule.

So why does NAV "Credit" an expense account?

yes, you are rigth. this is cost and should be debit. but, you miss that posting output journal is different than booking a cost. posting output journal reflects costs to fiished goods.