Question

policies
current attempt in progress
during the month of july, sandhill company incurred the following manufacturing costs:

1. purchased raw materials of $8,720 on account.
2. incurred factory labour costs of $30,650.
3. factory utilities of $4,000 are payable, and depreciation on the factory building is $6,610.

prepare journal entries for each type of manufacturing cost (list all debit entries before credit entries. credit account titles are automatically indented when the amount is entered. do not indent manually.)
account titles and explanation debit credit

Explanation:

Step1: Journal entry for raw materials purchase

When raw materials are purchased on account, the Raw Materials Inventory account (an asset) is debited (increases) and Accounts Payable (a liability) is credited (increases).

$$\begin{align*} &\text{Debit: Raw Materials Inventory}\quad 8720\\ &\text{Credit: Accounts Payable}\quad 8720 \end{align*}$$

Step2: Journal entry for factory labour costs

Factory labour costs are part of manufacturing costs. The Factory Labour account (a temporary - account for accumulating labour costs) is debited. Assuming it's on account (if not specified otherwise, for the sake of journal - entry structure), we can assume a liability (if paid in cash, Cash would be credited). Here, we assume it's on account (a common scenario if not stated).

$$\begin{align*} &\text{Debit: Factory Labour}\quad 30650\\ &\text{Credit: Accounts Payable (or Cash)}\quad 30650 \end{align*}$$

Step3: Journal entry for factory utilities and depreciation

For factory utilities (a manufacturing overhead cost), Manufacturing Overhead is debited (increases) and Accounts Payable is credited (increases). For factory building depreciation (also a manufacturing overhead cost), Manufacturing Overhead is debited and Accumulated Depreciation - Factory Building is credited (increases the contra - asset account).

$$\begin{align*} &\text{Debit: Manufacturing Overhead}\quad(4000 + 6610)=10610\\ &\text{Credit: Accounts Payable}\quad 4000\\ &\text{Credit: Accumulated Depreciation - Factory Building}\quad 6610 \end{align*}$$

Answer:

Account Titles and Explanation	Debit	Credit
Accounts Payable		8720
Factory Labour	30650
Accounts Payable (or Cash)		30650
Manufacturing Overhead	10610
Accounts Payable		4000
Accumulated Depreciation - Factory Building		6610