Question

When Indirect Materials are received from a supplier and paid at once. When Indirect Materials are requested into production. Show how the transactions in (a) and in (b) are recorded in T-accounts

Answer 1

The receipt of indirect materials from a supplier and their transfer into production are recorded in two separate transactions. The first transaction involves debiting indirect materials inventory and crediting cash or accounts payable. The second transaction requires debiting manufacturing overhead and crediting indirect materials inventory.

Step-by-step explanation:

When indirect materials are received from a supplier and paid for at once, the accounting entries would typically involve debiting the indirect materials inventory and crediting cash or accounts payable, depending on whether payment is made immediately or on credit. This transaction records the increase in inventory (an asset) and the decrease in cash or the increase in accounts payable (a liability).

When indirect materials are requested into production, the cost of these materials is moved from the indirect materials inventory account to the manufacturing overhead account, which captures all indirect production costs. The journal entry would debit the manufacturing overhead account and credit the indirect materials inventory account, reflecting consumption of these materials.

Journal Entry Examples:

1. When indirect materials are received:
   Dr. Indirect Materials Inventory
   Cr. Cash/Accounts Payable
2. When indirect materials are requested into production:
   Dr. Manufacturing Overhead
   Cr. Indirect Materials Inventory