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The factory overhead account

The factory overhead account - overhead to cost of goods...

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The factory overhead account (see Figure 5  ) has a balance which indicates the amount of overhead  applied to work-in-process inventory is different from the actual overhead incurred. When there is a  debit balance in the factory overhead account, it is called under-applied overhead meaning not  enough overhead was allocated to jobs. If the balance in the factory overhead account was a credit,  the overhead would be over-applied, meaning too much overhead was allocated to jobs. Factory  overhead must be zero at the end of the year. Most companies transfer the balance in factory 
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Unformatted text preview: overhead to cost of goods sold. An alternative method, although more complex, is to allocate the under- or over-applied balance among the work-in-process inventory, finished goods inventory, and cost of goods sold accounts. The $2,600 account balance in factory overhead in Figure 5 is relatively small. To zero out the account balance and transfer it to cost of goods sold, the entry would be: General Journal Date Account Title and Description Ref. Debit Credit 20X0 Dec. 31 Cost of Goods Sold 2,600 Factory Overhead 2,600 Transfer under-applied overhead...
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