Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Adjusting Entries: Accrued Expenses

Financial Accounting

3. Accrual Accounting Concepts

Adjusting Entries: Accrued Expenses

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Multiple Choice

If manufacturing overhead is underapplied at the end of the accounting period, which of the following adjusting entries should be made?

Debit Finished Goods Inventory and credit Manufacturing Overhead

Debit Manufacturing Overhead and credit Finished Goods Inventory

Debit Cost of Goods Sold and credit Manufacturing Overhead

Debit Manufacturing Overhead and credit Cost of Goods Sold

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Verified step by step guidance

Understand the concept of underapplied manufacturing overhead: Underapplied overhead occurs when the actual manufacturing overhead costs incurred are greater than the overhead costs applied to production during the period. This means the company has not allocated enough overhead to its products.

Determine the impact of underapplied overhead: Since the actual overhead costs are higher than the applied costs, the company needs to adjust its accounts to reflect the additional overhead expense. This adjustment typically affects the Cost of Goods Sold account because it directly relates to the production costs.

Identify the correct accounts for the adjusting entry: To correct underapplied overhead, the Manufacturing Overhead account (which holds the unallocated overhead) must be reduced (credited), and the Cost of Goods Sold account must be increased (debited) to account for the additional expense.

Formulate the adjusting journal entry: The adjusting entry will involve debiting the Cost of Goods Sold account and crediting the Manufacturing Overhead account. This ensures the financial statements accurately reflect the total production costs for the period.

Review the impact of the adjustment: By making this entry, the company ensures that its financial statements properly match expenses with revenues, adhering to the matching principle in accounting. This adjustment also ensures that the Manufacturing Overhead account is cleared out at the end of the period.