Disposal, inventory adjustments, prototypes, and Goods issued? result based on internal consumption
Cost transfers based on goods issued result in the production management system include transfers within manufacturing costs and transfers from cost of goods sold to SG&A expenses.
The spoilage of materials and work in progress is deducted from the manufacturing cost. Since it is a transfer within the manufacturing cost, the amount of the manufacturing cost itself is the same even without this journal entry.
- Dr. Spoilage Cr. WIP Transfer to other account
The loss on disposal of the product after the manufacturing cost is fixed is deducted from the cost of sales, but without this journal entry, the cost of sales is overstated and gross profit is understated (the same is true for operating income).
- Dr. FG Disposal Loss Cr. FG Transfer to Other account
Prototypes are deducted from cost of sales as a selling expense, but without this journal entry, cost of sales is overstated and gross profit is underreported (same for operating income).
- Dr. Selling expense Cr. FG Transfer to other account
If it is for employee bribery, general and administrative expenses are deducted from cost of sales, but without this journal entry, cost of sales is overstated and gross profit is underreported (same for operating income).
- Dr. Administrative expense Cr. FG Transfer to other account
If it is a jig, it should be capitalized, but without this journal entry, cost of sales will be overstated and gross profit will be underestimated (same for operating income).
- Dr. Asset Cr. FG Transfer to other account
Treatment of Shelf Differential between System Inventory and Physical Inventory Volume
If the policy is to fix the cost of goods manufactured in the month with "Work-in-process at the beginning of the month + manufacturing cost of the month - work-in-process at the end of the month", there is no need to make a cost transfer journal in accounting from the inventory at the end of the month.
Because "goods in progress at the end of the month" is based on the actual inventory volume, the difference between the month's inventory and the shelf differential would be automatically included in the month's cost of goods manufactured, which is the result of the trichotomy method.
In this case, the manufacturing cost of goods on the shelf differential is excessively high, cost of goods sold is excessively high, and gross profit is understated (operating profit is the same).
When the difference between the shelf differential and the cost of goods sold is recorded as inventory loss (SG&A), it shall be deducted from the cost of sales. The amount of wear and tear is deducted indirectly from the cost of sales by adding the amount of wear and tear to the end-of-month value of the product through a transfer to another account.
- Dr. Inventory Loss Cr. FG Transfer to other account
When the difference in materials is transferred to manufacturing overhead within the manufacturing cost, the following journal entry is generated, but the total manufacturing cost remains unchanged.
- Dr. Overhead Cr. WIP Transfer to other account
The cost of the import declaration PIB (Pemberihauan Impor Barang) and the cost of the goods delivery authorization SPPB (Surat Persetuhuhan Penerimaan Barang) are allocated to the cost of production. Without this journal entry, the manufacturing cost is underestimated and the cost of sales is underestimated, which results in overstatement of gross profit (same for operating profit).
- Dr. PIB Cr. AP
- Dr. COGM Cr. PIB
Journal entries for inventory revaluation using the lower-of-cost-or-market method
A journal entry is made when an inventory is valued at the lower of the total average unit price calculated by the cost management system or the market value, taking into account market conditions.
In the case of significant obsolescence, a loss on valuation of inventory (SG&A expenses) is recorded, and in the case of a reason other than the usual reason (theft or fire), an extraordinary loss (non-operating expenses) is recorded.
- Dr. Loss on valuation of inventory Cr. WIP Transfer to other account
- Dr. Special loss Cr. FG Transfer to other account
If the valuation unit price is lower than the total average unit price, the difference is recorded as a valuation loss, and then the valuation unit price is applied to the inventory valuation at the end of the month, and if it is higher, the total average unit price is applied to the inventory valuation at the end of the month (in this case, the valuation loss is zero).
- Actual values that take market conditions into account are set as the end-of-month valuation unit price master.
- Valuation loss, which is the difference between the actual value and the end-of-month valuation unit price (theoretical value) of the cost accounting results, is calculated.
- By turning on the truncation flag of the revaluation process type master and copying the calculation results, a valuation loss is charged to expenses at the beginning of the next month and the valuation value is carried forward.