Cash Flow From Operations From Balance Sheet And Income Statement Factory Ledger and General Ledger

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Factory Ledger and General Ledger

It is often practical for a manufacturing concern to incorporate the factory ledger into its accounting system. Generally, this procedure is followed when manufacturing operations are remote from the head office or when the nature of such operations requires a large number of invoices.

Some accounts relating to production are kept in factory ledgers and others in general ledgers. Which accounts and other records are kept in the factory journal and ledger and which accounts and records are kept in the general journal and ledger depends on various factors and the nature of production matters. However, there are certain accounts which are usually kept in factory books. These are the accounts that relate to production costs and include stock or material accounts, labor or wages accounts, factory overhead accounts, general ledger, which is also included in the factory books.

Most organizations keep cash and other factory assets in general office records. Thus, the general ledger includes such accounts as sales, cost of goods sold, plant and machinery, accumulated depreciation and liabilities, etc. Also includes control account, factory ledger.

In the general ledger and factory journal, the entries relating to the general ledger and the factory ledger are recorded first. The factory and the general ledger of control accounts are reciprocal in nature, i.e. a debit to one is automatically a credit to the other and vice versa; therefore, they allow each book to self-balance.

To check the mutual accounts (control account of the factory ledger in the general office books and control account of the general ledger in the factory business books) inter-office vouchers, which are also called transfer vouchers, are used. By means of these inter-office or transfer vouchers the factory office informs the general office; and the factory office informs the general office.

In a cost accounting system, the amount of accounting data to be collected is usually very large. For this reason, many companies find it convenient to keep separate books in factory offices and general offices. By establishing a separate group of factory accounts, financial accounting records are freed from many of the details that are usually essential in cost accounting work. The need to separate factory accounts from other accounting data also arises due to the following factors:

a. Where the general or administrative offices and the factory offices are not in the same place or in the same premises or under the same roof.

b. When the policy of decentralization has to be taken into account in many production plants, each of which has its own management and administration.

When the above conditions are present, it is advisable and beneficial to keep some of the books in the factory offices and some in the general offices. General offices usually keep: all voucher or accounts payable accounts, cash and accounts receivable accounts, sales and administrative accounts, etc. Production accounts relating to materials or stores, work-in-progress, finished goods, labor and factory overheads are kept in the factory office. If both offices are involved, the mutual entry is transferred to the books.

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