Jerome Lee Nicholson.

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requisition, purchase order, material received sheets, and
sometimes the cancelled check, when this is returned from
the bank. Thus it will be seen that the voucher pro-
vides for a complete history of the purchase transaction.
A separate voucher should be prepared for each creditor
from whom purchases are made, but in case several trans-
actions with the same creditor have occurred during the
month, and the account is paid monthly, several invoices
may be attached to the same voucher.

When the pay-roll is distributed through the accounts
payable register, a voucher should be prepared for the pay-



The information under the caption "Operating or Fac-
tory Ledger" should be posted to the accounts in the
factory ledger under the proper classification.

Register of Accounts Payable (Form 9)

The "Register of Accounts Payable" is the record in
which the accounts payable vouchers are entered and sum-
marized. The vouchers are usually entered in numerical
order according to date. The register of accounts pay-
able is sometimes known as "Voucher Register," "Ac-
counts Payable Register," "Record of Audited Vouchers,"
and "Creditors' Record."

The record generally provides columns for recording
the following information:

Date, number of voucher, name of creditor, amount
payable, and distribution of the amount into the columns
provided for the classification, as shown by the accounts
payable voucher. The record also provides columns for
showing the information relating to the payment of the

One of the principal reasons for the use of a register
of accounts payable is the fact that it dispenses with the
necessity of keeping detailed ledger accounts with the
creditors, thereby saving considerable time.

At the end of the month the total of the column
headed "Vouchers Payable" is posted to the credit of
that account in the general ledger. The totals of the
columns under the captions "Operating Accounts" and
"Property Accounts" are posted to the debit of the re-
spective accounts in the general ledger.

The vouchers payable account is the controlling account
of the register of accounts payable.

Under the caption "Miscellaneous Accounts" will be
entered the items which are not provided for in the other




classifications, and these will either be posted individually
to the debit of the account affected, or be summarized
at the end of the month for posting.

Material Received Summary

A summary is sometimes prepared from the material
received sheets, and may be used where different ship-
ments of the same class of raw material have been re-
ceived, the price remaining the same. The posting of
material received, when a summary is not used, is taken
from the material received record. An entry is made on
the accounts payable voucher for material received, ac-
cording to classification, and it is also entered in the "Fac-
tory" column in the register of accounts payable. An
entry is also made of the material received on the debit
side of the raw stock record. In case the material is
intended only for a special order, it should be entered on
the cost record of that order, and then need not neces-
sarily appear on the raw stock record.

Report of Material Delivered (Forms 24, 25)

If the postings are made daily from the material
requisitions, no summary of material delivered to the
operating departments is needed, but where the cost of
the material does not fluctuate, it may be of advantage
to summarize weekly, or at the end of the cost period.

In many kinds of manufacturing, differences occur in
the cost of the raw material without any corresponding
difference in the quality of the material, as in the buying
of cotton-seed oil, or hops. In such cases, the average cost of
material for the cost period is generally taken and treated as
if it were the real cost. Unless this is done, or unless the
price remains stationary, the summary of material requisi-
tions had better be omitted, as its advantage lies in collecting


many charges of a similar kind into one general charge
for posting.

Form 24 is intended to classify the material used ac-
cording to the selling classifications of the product only,
and is especially adapted for a system in which estimated
costs must be proved.

Departments A, B and C represent, on this form,
operating departments of the plant. The captions i, 2
and 3, under the departments, represent the selling

Form 25 is an ordinary record for the recapitulation of
material requisitions, according to order number, product
chargeable, article, quantity and value. The material de-
livered to operating departments is credited on the raw
stock records and charged under the caption "Material"
to the proper "Work in Process" account in the factory

Partly-finished material taken out of stock is also
posted to the cost records according to the classification
provided for by the system in use, which may be order,
article, job, section or process.

Pay-Roll (Forms 37-40)

The pay-roll is prepared from the time reports for the
purpose of summarizing and distributing the amount paid
to each employee. The type of form selected depends on
the class of system to be used, and the information desired.

Form 37 represents the factory pay-roll for a week,
with all the operating departments on one sheet, the
labor being classified in the operating departments into
"Direct" and "Indirect." Provision is also made for
special labor, as in the case of a cupola where a foundry
is one of the operating departments. The labor in con-
nection with the cupola is all direct, as the cupola is a



' process cost. The labor cost of the power department is
also provided for, and as the distribution is made from
the total cost, all the labor is regarded as direct in that
department. Provision is made for salaries of of^cers, of
office clerks, foremen, supervision, shipping, and any other
clerk hire. While the form is very complete, there are
many cases where it will not be practicable to use it in
its entirety, because of the fact that salaries are combined
with the workmen's pay-roll on the one record.

Form 38 provides only for the pay-roll according to
department, dividing the labor into direct, supervision and
office salary, the direct labor being entered only in the
operating departments.

Form 39 provides for recapitulating the labor accord-
ing to department, direct, indirect and supervision.

The individual time records may be posted daily on
Form 40, just as on Form 37; and the total amount of pay
is shown at the end of the pay period. The form pro-
vides for classifying the labor according to department
only, no distinction being made between direct and in-
direct labor.

The pay-roll may be entered in different ways:

( 1 ) It may be attached to an accounts payable voucher,
upon w^hich it will be classified for charging to the various
factory accounts as well as to administrative expense
accounts. The accounts payable voucher is then entered
in the register of accounts payable, where it appears as
a credit to the Pay-Roll account, a charge being made to
the factory ledger and other expense accounts. The entry
is made from the accounts payable voucher to the various
department accounts in the factory ledger, and also to
the various cost records under the caption "Direct and
Indirect Labor."

(2) When the pay-roll is not attached to the accounts


payable voucher, but entered directly in the cash book
and charged to a Pay-Roll account in the general ledger,
an entry should be made distributing the Pay-Roll ac-
count, and charging the various departments, processes,
or articles with their proper proportion of direct labor.
The indirect labor is charged to an indirect labor account,
in total, or under whatever classifications the division of
the labor accounts may require.

Analysis of Pay-Roll (Forms 35, 36)

The "Analysis of Pay-Roll" is for the purpose of re-
capitulating the labor charges into classifications not pro-
vided for on the regular pay-roll form, or for those cases
where the pay-roll form is not suitable for an analysis.

The information to be entered upon the analysis will
depend both on the class of system used and the type of
pay-roll. The pay-roll may be analyzed in various ways
for cost purposes, viz:

(i) According to departments, operations and

(2) According to machine costs

(3) According to classifications of product

Form 35 represents a method of recapitulating the
pay-roll for a week according to department, the direct
labor cost being charged to a classification of product
especially adapted to a departmental system. Provision
is made also for the indirect labor. Under certain condi-
tions this form may be used as a pay-roll as well as an

Form 36 is not intended for pay-roll purposes, but
for making a recapitulation of all workmen's time, show-
ing the total number of hours chargeable to an operation




or order. This form may be used to ascertain the total
number of hours of the machines or equipment, for the
distribution of either machine charges or indirect ex-
penses, on the basis of production hours.

Statement of Factory Expenditures (Forms 41-44)

Indirect expenses are so general in character and arise
from such divergent sources that it is good policy to sum-
marize them upon a statement of factory expenditures,
which may be used as a summarized statement of factory
accounts or as a source from which the distribution of the
general operating expenses may be made. A statement of
factory expenditures is given, with the figures entered, to
illustrate its use more clearly.

Form 41. A form of this character may be used for
analyzing either factory expenditures, or selling and
administrative expenses. The items composing the ex-
penditures may be entered across the top of the form,
with the date and voucher number at the left-hand side;
or at the end of the period the accounts may be entered
at the left-hand side running down, and the months
across the top, thereby making a comparative statement
of expenditures.

Form 42. This form is used to analyze factory expendi-
tures only, and is intended for distributing the indirect
expenses over the product as a whole and not by de-
partment. The record provides for showing information
in comparative form, and provision is made to show
the inventory at the beginning of the period, as well as
all direct and indirect charges, from which the cost of
the goods sold is deducted, leaving the inventory at the
end of the period comprising raw material, goods m
process and finished stock on hand.

Form 43. This is a monthly statement taken from


the factory ledger, and may properly be called an "An-
alysis of Manufacturing Charges." It represents the
operations of one month only. The titles of the accounts
are entered in the column at the left of the form, and a
column is provided for each operating department.

The monthly statement, when taken from the factory
ledger, will show the material and labor charged to each
operating department, and an analysis of the depart-
mental expenses. Columns are ruled on the lower part
of the form for operations of the storeroom, for general
factory expenses, and for the distribution of the same.

The chief purpose of this form, outside its direct in-
formation, which is valuable to the management, is to
supply data from which may be determined the per-
centage to be used in distributing the indirect expenses
on the cost of all articles as entered on the cost record.

The information shown under the caption "Direct"
represents the productive labor of each department, as
well as the material used; whereas all the items appearing
under the caption "Indirect " represent expenses charge-
able directly to each of these departments, except the
account "General Operating Expenses," which contains
such items as appear in the lower section of the form and
do not relate to any particular department. These ex-
penses may be prorated over all the departments on the
basis of the amount of direct labor charged to each de-
partment, by multiplying this amount by the percentage
obtained from dividing the total amount of the operating
expenses by the direct labor. The department accounts
will then be charged with all the indirect expenses, in-
cluding the general operating expenses; and the per-
centage shown will represent the proper amount to be
added for indirect expenses to the prime cost of the
articles manufactured in any one of these departments.


In the lower left-hand section of this form the store-
room operations are indicated, i. c, the value of the in-
ventory at the beginning of the period, the purchases
during the period, and the material delivered to operating
departments during the month. This material delivered
is recorded in the upper section of the statement under
the caption "Direct," opposite the account ''Material/'
The balance shows the inventory of raw material on hand
at the end of the month.

The only important difference between Form 43 and
Form 44 is that the latter is made in comparative form.
The statements of factory expenditures as shown by these
forms are of added value to the management when used
as a monthly comparative record of the indirect expenses
in each department.

Process and Machine Cost Records (Forms 45, 46)

The designs illustrated are used only in a machine
or process cost system, provision being made for the dis-
tribution of power and machine costs. A detailed ex-
planation of these records will be found in Chapter XV.

Production Report or Production Summary (Forms 47-50)

There are many kinds of production reports to meet
the demands of widely different industries. In some cases
time reports are used for reporting production, as ex-
plained in Chapter VII.

The production report is valuable for indicating the
efficiency of various departments. The forms should be
so filed that comparison between them will be easy, and
discrepancies will be noted at once. In this way the effect
of any change of conditions or methods can be accurately
gauged. This double service makes the production re-
port one of the most important forms of a system.



Some of the purposes for which production reports
may be used are as follows:

(i) Reporting production only

(2) Reporting production and indicating on the
report the amount of defective work

(3) Indicating the cost of material

(4) Showing the labor and material cost

The production report is used in many forms. Those
shown in the present volume are typical.

Form 47. This form is intended to report the pro-
duction by department and order number and to show
the total produced, the amount defective and the amount
good. The operation may also be indicated, if desired.

Form 48. This form represents a plan for gathering
the material and labor cost on a production report, but
does not provide for indirect charges unless they are in-
cluded in the machine rate, in which case they would be
entered under the column "Process or Machine Costs."

The form is intended to be used principally in a process
or machine cost system, and the time of all workmen on
one operation may be recapitulated under the caption
"Time," according to the hours of the workmen, or the
machine hours, depending on the system in use.

Form 49. This form is a monthly report, and pro-
vides for recording the production by departments daily,
according to the classification of product. It is espe-
cially adapted to a departmental system. Provision is
made for costing the material on the report. When this
is done the rate to be used may be obtained from the
bill of material.

The report may be made out by the foreman of a
department, or may be compiled from time records show-



ing production, or from production reports which show
production only.

Form 50. This form is a monthly report intended to
record the production according to department, opera-
tion, and order number, if one is used. The columns
I to 31 represent the days in a month, and are intended
for entering the total production each day, according to
the operation. Provision is made on the right-hand side
of the form for costing the material, the necessary data
being taken from a bill of material or material requisi-
tion. The information contained on the production
reports is entered on the cost records.

Defective Work Report (Form 51)

It is more convenient sometimes to have separate
forms for reporting or summarizing defective work than
to have columns on the regular production or time re-
ports. The form is valuable as an organization and
efficiency report. A certain loss from defective work is
almost sure to occur; and the only way to reduce this
to a minimum is to have definite reports showing when,
where and why the defect occurred.

The mere fact that all defective work is reported to
the management will tend to minimize this loss. Also,
if there is rivalry between the operating departments as
to which can make the best record, and the foremen
of all the operating departments receive copies of these
reports, it will tend strongly to lower losses on defective

The cost of defective work may be charged against the
department, job, order, or article, or may go into a special
account and be included in the indirect expenses. If it
is possible to use some of the material again, as in the
case of defective castings, it should be taken back into


Stock at its scrap value; and the difference between the
scrap value and its original cost may be charged as stated
above. The cost of defective work should include its
proper proportion of the indirect expenses.

Cost Sheets (Forms 52-55)

All cost data, in whatever form they may have been
gathered, must be finally entered on a form showing the
complete costs of production. It would be difficult to
name any form which could be called a standard form
for this purpose, owing to the many different manufactur-
ing industries, the varying conditions existing in plants,
and the different types of cost systems.

The forms presented here merely illustrate the methods
by which cost data may be entered to show final results.
Indeed, special forms are not needed for the purpose,
as complete costs may be shown on production orders
(especially where the production order represents a cus-
tomer's order), or they may be compiled on a production
report. Both of these plans are illustrated in this book.

In many cases the cost sheet is used as a cost record
only; and cost data from all sources are compiled upon
it. The best plan to pursue in designing a cost record
will depend, therefore, on the manufacturing conditions
and the type of system in use or to be used.

Form 52. This is not a record of costs as used in
a regular cost system, since it only records estimated
costs. It is therefore adapted only to one of the systems
where costs are estimated in advance and these estimates
are checked by results.

Form 53. This form is intended to show the cost
per article where a process system is used. The quantity
produced and the time of the workmen are entered accord-
ing to department, under the captions i, 2, 3, 4 and 5.


^' The process rate per hour is ascertained and the process
cost calculated. The material cost is then entered, and a
summary of this information shows the total cost.

Form 54. A form of this character may be termed a
"Progressive Cost Record," inasmuch as the costs are
carried from department to department until the final
costs are obtained. A separate sheet is used for each
department. In the first department no record is made
under the caption "Previous Operations," but all the
other columns are used, the material and labor costs and
the information under "Indirect" coming from the forms
containing the required information, according to the
system in use. The production of the department is
shown under "Quantity," and the total cost under the
caption "Total." When work progresses to the next
department, the record will show the cost of previous
operations as taken from the "Total" column of the pre-
vious department's report.

Form 55. This record is intended to be used where all
cost data are entered on other forms and then trans-
ferred to and combined with this record. In addition, the
record is used for showing the number of machines in use
in connection with production, and the average production
per machine, this information being only of a statistical

The postings from the cost sheets to other records
will depend entirely on what type of system is in use.
Wherever a stock record is kept, an entry should be made
to "Part-Finished" or "Finished" stock, according to the
proper classification. In a system where accounts are
kept representing goods in process of manufacture,
whether it be in a factory ledger or the general ledger,
the totals, as compiled on the cost sheets, are credited
to the proper classification in those ledgers, so that the


balance of the accounts affected will show the value of the
goods in process of manufacture.

Record for Part-Finished and Finished Stock (Forms 56-59)

The functions and importance of stock records were
discussed under the head of raw material stock records.
The present records form a part of the stock system in a
factory. The regular forms for finished stock may be
used, with the necessary minor changes in the headings,
for part-finished stock records.

Form 56 illustrates a simple method of keeping stock
records. The form may be used for finished or part-
finished stock. The caption ''Used" on this design is
intended to cover part-finished stock taken back into
process of manufacture, either for completion or for
assembling purposes.

Form 57 carries out the same idea as Form 56, ex-
cept that the word "Deliveries" is substituted for the
word "Used." The form is also more complete for post-
ing purposes.

Form 58. This might be termed an "Analytical Rec-
ord of the Finished Product"; and it is used where it is
convenient to keep a record on one sheet of a number
of different sizes of the same article. Provision is made
only for quantity produced, quantity of orders received,
and the quantity shipped.

Wherever a form of this character is used, and it is
desired to carry the value of the finished stock on the
records, it will be necessary to use one of the regular stock
records showing the value. In this case, the regular
record would provide only for the article, independent of
the sizes, the record showing sizes being merely an an-
alyzed statement of sizes in stock.

Form 59. This record, wherever it can be used, makes


about as complete a stock record as could be desired.
The particular features of interest are the columns for
orders received, orders cancelled, and unfilled orders on

The entries on this finished stock card, costing the
production, are taken from the cost record. When goods
are sold, the finished stock card is credited from the bill-
ing and shipping records, and when part-finished stock
is taken out, from either the material requisition or bill
of material.

Billing and Shipping Records (Form 62)

It is frequently possible to combine the records for
billing, shipping and costing the sales. For instance, an
order is received and accepted. The billing clerk then
makes out three copies of the bill. The original goes to
the customer, the duplicate goes to the shipping clerk —
serving as a shipping order — and the triplicate remains in
the office for entry on the register of sales and costs. It
will be noticed that the triplicate provides extra columns
for recording the information applying to the costs, such
as rate and amount of cost, the number and date of invoice,
the name and address of customer, shipping memoranda,
quantity, amount, etc.

Only one form of billing record is illustrated here,
and this is presented for the one purpose of illustrating
the accounting procedure involved. When a form is to
be devised, its design will depend entirely on the condi-
tions of manufacturing and selling, and the system in

The information on the triplicate copy, under the cap-

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Online LibraryJerome Lee NicholsonCost accounting, theory and practice → online text (page 7 of 19)