Accounting for Manufacturing Overhead: In small or medium sized businesses Manufacturing overhead accounts have usually been kept in a subsidiary ledger. Punched cards, tapes, or magnetic disks in data processing systems constitute the methods used in large-scale industries with an up-to-date information system. The company’s chart of accounts will define the accounts to be used. Steps in Accounting for Manufacturing Overhead in a manufacturing company may be as follows.
The steps involved in Accounting for Manufacturing Overhead are:
1. Analysis of manufacturing overhead transactions
2. Journalizing manufacturing overhead transactions
3. Posting overhead transactions to the factory overhead subsidiary ledger and the factory overhead general ledger control account
Principal Original Records: Some manufacturing overhead items are vouched and paid for during the month; others are the result of current journal entries for supplies and indirect labor used; still others are adjustments made at the end of a fiscal period. The principal source documents used for recording manufacturing overhead in the journals are: (1) purchase vouchers, (2) materials requisitions, (3) labor job time tickets, and (4) general journal vouchers.
Underlying source documents provide a record of the overhead information which must be analyzed and accumulated in proper accounts.To obtain accurate and useful information, each transaction must be properly classified at its inception. Those responsible for this identification must be thoroughly familiar with names and code numbers of cost accounts as well as with the purpose and function of each account.