Pool Accounting

Pool Accounting is an accounting term for manufacturing, the process usually relies on a temporary account before the cost of manufacturing is re-allocated correctly.

The temporary account can be called a Pool account or a Suspense account. Either way is fine as this is only temporary. For this explaining, it will be known as “Pool Acct (Pool Accounting)”.

For SmartB, the bulk of the raw material (RM) cost is based on actual cost (except wastage). Hence, RM will be discussed separately.

1. Cost of Production

The cost of production is usually done based on an estimated cost (a.k.a. Standard Cost). Hence, in the system, the double entry would be as such.

Dr Work In Progress Inventory

Cr Pool Acct

  • Direct labour (actual)
  • Indirect labour/expenses (estimate)
    • Factory overhead
    • Finance & Operating Expenses
    • Variable labour cost

 

Factory overhead usually includes:

  • Utilities Payable
  • Machine Depreciation (optional)
  • Maintenance cost / Supplies

2. Labour Cost

Factory labour costs are generally recorded when the pay checks are written. An exception would be when an adjusting entry is required at the end of an accounting period. Factory labour, whether direct or indirect, is a product cost.

Dr Pool Account (actual)

  • Direct labour (actual)
  • Indirect labour/expenses (actual)
    • Factory overhead
    • Finance & Operating Expenses
    • Variable labour cost

Cr Cash/Bank

3. Transfer Completed Goods in Process to Finished Goods

Dr Finished Goods

Cr Work In Progress Inventory

4. Apply Over- or Under-Applied Indirect Labour/Expenses

Since overhead is based on an estimate, the Indirect expenses will almost always have a balance at the end of the accounting period. If the Indirect expenses account has a debit balance, account has been under-applied. If the overhead account has a credit balance, overhead has been over-applied. Assuming the balance is immaterial, close the balance in the account to Cost of Goods Sold.

Under-applied:

Dr Cost of Goods Sold

Cr Pool Account

Over-applied:

Dr Pool Account

Cr Cost of Goods Sold

 

 

Manufacturing