Question

During the current period, Sean Company transferred $60,600 from Work in Process to Finished Goods and recorded Cost of Goods Sold of $66,520. Which of the following reflects the Cost of Goods Manufactured being transferred out of the factory?

a. credit to Finished Goods of $60,600

b. debit to Finished Goods of $66,520

c. credit to Cost of Goods Sold of $66,520

d. credit to Work in Process of $60,600

Answer 1

Answer is (a)

Finished Goods are debited when amount is transferred from work-in-process and credited when transfer outside factory is made with the amount of cost of goods sold. As such the accounting entry would be as under:

Cost of Goods Sold Dr. $ 66,520

Finished Goods Cr. $ 66,520

The amount of $ 66,520 is the total cost of goods sold. However, since the amount transferred from work-in-process for goods manufactured during the current period is $ 60,600, it means that there is some opening balance in Finished Goods Account. As such, credit to Finished Goods is as under:

1. On account of goods manufactured being transferred out of the factory : $ 60,600

2. On account of finished goods available as opening stock being transferred out of the factory : $ 5,920 (difference)

Total Credit to Finished Goods : $ 66,520.

Notes:

1. Debit to finished goods $ 66,520 : Debit to Finished Goods reflects cost of goods manufactured transferred from work-in-process. In the question, amount transferred from work in process to Finished goods is $ 60,600 and not $ 66,520.

2. Cost of Goods Sold is an expense and hence would be debited to record cost of goods transferred out of factory and not credited.

3. Credit to work in process reflects cost of total goods manufactured. The actual goods transferred out of factory may be different and is done through a transfer from Finished goods to Cost of Goods Sold.