Work in Process Journal Entry
Introduction
In accounting, the work in process journal entry starts when the manufacturing company starts the production. Likewise, in the job order costing, the cost of direct labor and direct raw materials will be assigned to the work in process when they are determined.
On the other hand, the cost of indirect labor and indirect raw materials as well as other indirect costs, such as depreciation, will be assigned to the manufacturing overhead account first before moving to the working process account.
Work in process journal entry
In the job order costing, the company can make the work in process journal entry when it starts the production as below:
| Account | Debit | Credit |
|---|---|---|
| Work in process inventory | $$$ | |
| Raw materials (direct) | $$$ | |
| Labor cost (direct) | $$$ | |
| Manufacturing overhead | $$$ |
In this journal entry, raw materials and labor costs will only include the cost of raw materials and labor that is directly involved in the production. This is due to the indirect raw materials and indirect labor are considered the manufacturing overhead.
In addition to indirect raw material and indirect labor, the manufacturing overhead also includes other costs that indirectly contribute to the product such as depreciation, utilities, and insurance, etc.
After the production is completed, the company can make the journal entry to move the cost from the working in process to the finished goods inventory account.
| Account | Debit | Credit |
|---|---|---|
| Finished goods inventory | $$$ | |
| Work in process inventory | $$$ |
The finished goods inventory account is a type of control account that controls the individual finished goods records in the finished goods subsidiary ledger.
Example
For example, during the period, the manufacturing company ABC has used $35,000 of direct raw materials and $4,000 of indirect raw materials. In the same period, it also incurs the direct labor cost of $25,000 and the indirect labor cost of $2,000.
The manufacturing overhead during the period, including indirect raw materials and indirect labor, is determined to be $10,000.
In this case, the company ABC can make the journal entry of working in process of $70,000 (35,000 + 25,000 + 10,000) during the period as follow:
| Account | Debit | Credit |
|---|---|---|
| Work in process inventory | 70,000 | |
| Raw materials | 35,000 | |
| Labor cost | 25,000 | |
| Manufacturing overhead | 10,000 |
Likewise, when the production is completed, the company ABC can make the journal entry to transfer the above work in process to the finished goods inventory:
| Account | Debit | Credit |
|---|---|---|
| Finished goods inventory | 70,000 | |
| Work in process inventory | 70,000 |