Manufacturing Ledger with Closing Entries
The illustrations (pp. 48-50) show how all of these accounts are assembled into main groups, and finally closed into profit and loss, and capital accounts. An explanation of the accounts in the harness department will be sufficient to show how all of the accounts are treated.
Harness manufacturing, account A, is charged with accounts 34 to 39, inclusive, and the proper portion of account D. It is credited with the cost of all finished goods, the amount being transferred to account E, harness trading. It is credited with the increase in inventories over the preceding month, this amount being transferred to account 40; if inventories show a decrease, the amount is charged.
Harness trading, account E, is charged with cost of finished goods from account A; with account 64; with gross profits, transferred to profit and loss, account H. It is credited with sales, account 63; with increase in inventory, account 65.
Gross profits on account of trading are closed into profit and loss.
Inventory adjustment accounts Nos. 40 and 65, are still open and the balances show total inventories. The actual amounts of inventories are transferred to accounts 4 to 7, inclusive. This will leave a balance in inventory adjustment account No. 40, representing work in process in the harness factory. These inventory adjustment accounts are closed only at the end of the fiscal year, or when the books are closed. At the beginning of a new fiscal period the inventories are again charged to inventory adjustment accounts, and adjusting entries made monthly in manufacturing and trading accounts.