Account types used in cost accounting and their relative functions are:
Expense Accounts
The accounts used to track and record period expenses for production and management activities.
- 710-Direct Raw Material and Supply Expenses
The account used to track physical usage amounts of materials related to main production cost centers and used as main materials in finished goods. Direct raw materials withdrawn from the warehouse and used in production within the period are recorded as debit for this account and credit for the account number 150.
- 720-Direct Employment Expenses
Employment expenses are labor expenditures made for production and are related to actual production centers. Work time for each employee should be measurable and directly applicable to finished product costs. Distribution keys should not be necessary when this account is used.
- 730-Production Overheads
The account used to track expenses that are related to production but impossible to be transferred directly such as depreciation, rent, operating materials, auxiliary materials, indirect employment, electricity and water. It is mandatory to transfer all these expenses to finished product costs.
Transfer may cause problems since a direct relation can not be established between these costs and finished products, exact amounts can not be determined during the period and amounts change in time. Therefore, the distribution is performed using a distribution key. Distribution can be performed only after determining cost centers and distribution keys.
Expense Transfer Accounts
The accounts used to transfer amounts of expense accounts to related accounts. The amount to be processes covers all expenses on expense amounts when physical costs are applied, and costs defined according to standards when planned costs are used.
- 711-Direct Raw Materials and Supplies Transfer Account
Expenses recorded as debit on this account are transferred as debit into the 151- Semi Finished Products-Production Account as allowances for credits of this account. In this way, expenses on expense accounts are applied to semi finished product costs using this account.
- 721- Direct Employment Expenses Transfer Account
Expenses recorded as debit on this account are transferred as debit into the 151- Semi Finished Goods-Production Account as allowances for credits of this account. In this way, expenses on expense accounts are applied to semi finished product costs using this account. Any employment expenses unrelated to production are recorded as debit on 680- Idle Division Expenses Account as allowances for credits of this account. Debit amounts accumulated on 720- Direct Employment Expenses Account during the period are closed by being transferred into 721- Direct Employment Expenses Transfer Account. At the end of period, when credits are recorded for this account, debits are recorded for 151- Semi Finished Goods-Production Account.
- 731- Production Overheads Transfer Account
Amounts accumulated on production overheads during the period are closed at the end of period by being transferred into this account. Overheads occurred within the period are recorded as debits for the related material or cost account as allowances for credits of this account.
Difference Accounts
If planned costs are applied, expenses applied to finished goods may not reflect actual values at all times. Difference accounts are used to record differences between actual and planned expenses in order to apply the difference on finished good costs. Corresponding accounts are the related transfer accounts. These accounts may have debit or credit balances depending on the situation. Differences should be processed separately as quantity and price. Balances of such accounts are closed at the end of period by being transferred into related finished good accounts.
- 712-Direct Raw Materials and Supplies Price Difference
Negative and positive price differences are recorded respectively as debit and credit for this account. Difference closing examples are shown on following pages.
- 713-Direct Raw Materials and Supplies Quantity Difference
Negative and positive quantity differences are recorded respectively as debit and credit for this account.
Quantity Difference = (Standard Quantity – Physical Quantity) * Standard Price
- 722- Direct Labor Rate Variances
Negative and positive rate variances are recorded respectively as debit and credit for this account.
Direct Labor Rate Variance = (Standard Rate - Actual Rate) * Actual Duration
- 723-Direct Labor Efficiency Variances
Negative and positive efficiency variances are recorded respectively as debit and credit for this account.
Direct Labor Efficiency Variance = (Standard Duration - Actual Duration) * Standard Rate
- 732-Production Overheads Budget Differences
Indicates the difference between budgeted costs of physical capacity and physical costs. Negative and positive budget differences are recorded respectively as debit and credit for this account.
Total Budget Difference = Budget Costs – Physical Costs
- 733-Production Overhead Efficiency Differences
Indicates the positive or negative difference between the budgeted costs of standard direct labor hours required for actual production costs and actual direct labor hours.
- 734-Production Overhead Capacity Differences
Negative and positive budget differences are recorded respectively as debit and credit for this account.