High School

The following balances are extracted from the books of Reliance Company: You are required to show journal entries under a non-integrated system.

| | |
| :---------------------------------------------- | :------- |
| Material purchased for stock on cash | 500000 |
| Material returned to supplier | 250000 |
| Material purchased for specific jobs | 50000 |
| Payment to creditors | 45000 |
| Issue of direct material to production | 5000 |
| Return of direct material from production to stores | 40000 |
| Wages Paid | 5500 |
| Allocating to indirect wages as factory, admin and selling and distribution overheads | 75000 |
| Return of indirect material | 60000 |
| Direct expenses incurred | 78000 |
| Works overheads absorbed | 100000 |
| Unproductive wages paid | 50000 |

Answer :

To show journal entries under a non-integrated accounting system for Reliance Company, we will record the transactions in a manner that reflects their impact on the accounts. Here is how you would create the journal entries for these transactions:

  1. Material purchased for stock on cash:

    • Journal Entry:
      [tex]\text{Debit: Material Inventory} \quad 500,000 \\
      \text{Credit: Cash} \quad 500,000 \\[/tex]
      This entry records the purchase of materials for stock using cash.

  2. Material returned to supplier:

    • Journal Entry:
      [tex]\text{Debit: Cash} \quad 250,000 \\
      \text{Credit: Material Inventory} \quad 250,000 \\[/tex]
      This entry reflects the return of materials to the supplier, hence cash or accounts payable is increased, and inventory is decreased.

  3. Material purchased for specific jobs:

    • Journal Entry:
      [tex]\text{Debit: Job Specific Materials} \quad 50,000 \\
      \text{Credit: Cash or Accounts Payable} \quad 50,000 \\[/tex]
      This records the purchase of materials directly allocated to specific jobs.

  4. Payment to creditors:

    • Journal Entry:
      [tex]\text{Debit: Accounts Payable} \quad 45,000 \\
      \text{Credit: Cash} \quad 45,000 \\[/tex]
      Payment to creditors reduces the accounts payable account and cash.

  5. Issue of direct material to production:

    • Journal Entry:
      [tex]\text{Debit: Work in Progress} \quad 5,000 \\
      \text{Credit: Material Inventory} \quad 5,000 \\[/tex]
      This reflects the issuance of materials into production.

  6. Return of direct material from production to stores:

    • Journal Entry:
      [tex]\text{Debit: Material Inventory} \quad 40,000 \\
      \text{Credit: Work in Progress} \quad 40,000 \\[/tex]
      Materials are returned from production back to inventory.

  7. Wages paid:

    • Journal Entry:
      [tex]\text{Debit: Wages Expense} \quad 5,500 \\
      \text{Credit: Cash} \quad 5,500 \\[/tex]
      This entry records direct payment of wages.

  8. Allocating to indirect wages as factory, admin, selling, and distribution overheads:

    • Journal Entry:
      [tex]\text{Debit: Overheads (Factory/Admin/Selling)} \quad 75,000 \\
      \text{Credit: Wages Payable or Cash} \quad 75,000 \\[/tex]
      Allocation of indirect wages to different overheads accounts.

  9. Return of indirect material:

    • Journal Entry:
      [tex]\text{Debit: Indirect Material Inventory} \quad 60,000 \\
      \text{Credit: Factory Overheads} \quad 60,000 \\[/tex]
      Reflecting the return of unused indirect materials.

  10. Direct expenses incurred:

    • Journal Entry:
      [tex]\text{Debit: Direct Expenses} \quad 78,000 \\
      \text{Credit: Cash or Accounts Payable} \quad 78,000 \\[/tex]
      This is for recording direct expenses associated with production.

  11. Works overheads absorbed:

    • Journal Entry:
      [tex]\text{Debit: Work in Progress} \quad 100,000 \\
      \text{Credit: Overheads Control} \quad 100,000 \\[/tex]
      This reflects the absorption of overhead costs attributable to production.

  12. Unproductive wages paid:

    • Journal Entry:
      [tex]\text{Debit: Unproductive Wages} \quad 50,000 \\
      \text{Credit: Cash} \quad 50,000 \\[/tex]
      Payment of wages that are not directly productive, affecting profit calculation.

These journal entries comprehensively cover the financial transactions based on the information provided, under a non-integrated system, where cost accounts are maintained separately from financial accounts.

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