Cost Accounting Lecture Notes

  1. Cost Accounting Lecture Notes

Dear readers, you will find detailed information about cost accounting in our cost accounting lecture notes. The total value, in which all kinds of factors that the enterprises bear in order to obtain the goods or services in the field of activity, are expressed in money is called the cost. For this, cost can be defined as the sacrifice incurred in order to produce the good or service. Cost, which is an extremely important concept for businesses, should not be confused with expense and expenditure. Spending is when businesses make a payment. If there is a decrease in capital, that is, there is a decrease in business assets, these can be defined as expenditures. Expenses, on the other hand, can be defined as expenditures that can turn into assets at the end of the payments and are among the assets.

  1. Cost Accounting

It is the branch of accounting that consists of determining the cost price of the product or service produced in the enterprise, control of operating expenses, price examinations and determination of sales prices. Cost accounting is one of the main parts of accounting used for different purposes in businesses.

The expected tasks of cost accounting are briefly as follows:

 

Cost Accounting Lecture Notes
Cost Accounting Lecture Notes

2.1. To determine the costs of productions:

By calculating the cost of the goods or services to be produced, it determines the total cost and unit cost values ​​of the goods or services produced. With these certain values, the sales value of the good or service is determined according to the market conditions and the criteria of the business.

2.2. Being a means of control:

It provides the opportunity to keep the expenses under control by examining the expenses made by the enterprises in terms of the types on the one hand and the business segments where these expenses arise, on the one hand, and comparing them with the previously foreseen standards. It provides guidance to business managers.

2.3. To assist with planning:

In order to be able to choose between various options in the decisions to be taken regarding the business, the effect of each option on the profitability of the business should be investigated. This research can be carried out based on the information to be obtained from cost accounting.

  1. Concepts used in cost accounting:

Cost: The total value, in which all the factors that the business bears in order to obtain the goods or services within the scope of its activity, are expressed in money, is called the cost.

Asset: Economic values ​​such as money, goods, buildings, fixtures, machinery, vehicles, etc. owned by an enterprise.

Expenditure: It is the monetary expression of the money paid by the enterprise for any purpose, the asset transferred, the debt incurred.

Income: Revenue from the activities of merchants or businesses.

Expenses: Expenses that are used or consumed in order to continue their activities in order to obtain the revenue (income) of the period.

Revenue: All of the revenue collected in exchange for goods or services sold in a given period.

Profit: The difference between the income generated as a result of the realization of an activity and the expenses incurred for the operation.

Loss: The difference that arises as a result of the total expenses exceeding the total revenues in the operating period of the businesses.

  1. Cost Accounting Systems:

In cost accounting systems, the actions of recording, classifying, grouping, distributing and interpreting production-related transactions differ from business to business depending on the effect of many factors affecting the system in question. The size of the business, the organizational structure, the type of products, the production technique used and the nature of the information required by the managers can be given as an example of the factors affecting the cost accounting system to be created. Cost accounting systems with different classifications from different perspectives; We can classify them under three main headings: whether the cost data used is actual or not, whether it is based on all the cost elements in the calculation of the product cost, and according to the nature of the production actions.

It should always be remembered that the fundamental distinction as a system is actually the order and stage costing systems, which are the distinction made according to the nature of the production actions. Within this basic separation, we may encounter different applications of this basic separation depending on whether actual or standard costs or cost data for all or a certain part of the production cost are used.

4.1. Discrimination According to Whether the Costs Used Are Actual or Not:

According to whether the costs used are actual or not, cost accounting systems are divided into two as cost accounting systems based on actual figures and (Estimated) cost accounting systems based on forward figures.

– Estimated costs: These are the costs that are estimated based on a number of statistical calculations, according to the results of past periods and possible future developments.

– Standard costs: These are the costs calculated on scientific and technical basis and expected to occur under certain conditions.

4.2. Discrimination According to Whether All Costs are Basis or Not:

Cost accounting systems based on all or some of the cost elements in the calculation of the unit costs of the products; It is divided into two as full cost system and partial cost system.

In the direct costing system, all general production costs are accepted as period expenses, while in the variable costing system, only the fixed parts of the general production costs are accepted as period expenses and are not included in the cost of the manufactured product and are transferred directly to the income statement. Therefore, the general production costs, which are not included in the cost of the products produced, are not transferred to the future periods over the end of period product or product stocks.

In the full costing system, all these cost elements are added to the cost of production, while in the direct costing system, direct raw materials and direct labor costs, and in the variable costing system, the variable part of the direct raw materials and materials, direct labor and general production costs will be added to the cost of production.

4.3. Discrimination by Nature of Production Actions:

As it will be remembered from our previous explanations, the main distinction in the classification of cost accounting systems is the distinction made according to the nature of production actions. Cost accounting systems according to the nature of production actions; It can be grouped under two headings: order cost system and phase cost system.

4.3.1. Order Cost System

The Order Cost  System is the system in which the costs of each product or product group are tracked separately, in the enterprises that produce on the orders given by the customers’ special requests, is called the order cost system. The important feature and main purpose of this system are; is to monitor the production cost elements for each order separately, as far as possible, from the beginning of the production action to its completion.

In this system, work orders are arranged upon the order and production is started. Costs are recorded on special Order Cost Cards opened for each order. As an example of the businesses where this system is used; construction, printing house, repair shop, furniture manufacturing and jewelery producing businesses.

4.3.2. Phase Cost System:

phase cost system,It is a cost system generally related to the mass production of the same type of products. In this system, the average unit cost of each stage is found by dividing the total costs incurred in each production stage by the total production amount realized at that stage. The average unit cost of each phase is multiplied by the number of units to be completed in the relevant phase and transferred to the next phase (or product stocks) to find the total cost of the transferred units. The costs remaining in the phases after the transfer constitute the semi-finished product costs of the relevant phase. In short, the important feature in this system is the collection of costs during the stages of production. As an example of the businesses where this system is used; Businesses producing flour, glass, paint, paper, cement, sugar and wine can be given.

  1. Cost Accounting System:

The General Communiqué on Accounting System Implementation entered into force as of 01.01.1994. In the said communiqué, cost accounts are included in the 7th group of the uniform account framework. In 7/A option, costs are followed on a functional basis.

Expense Accounts, Types and Locations in the 7/A Option According to the 7/A option, the expenses are recorded in the relevant general ledger accounts on the basis of function as soon as they are made, while at the same time they are recorded in the auxiliary books in a way that they can be followed in terms of both types and expense places. Accounts in the 7/A option; It consists of three main groups as expense accounts, expense reflection accounts and difference accounts.

Expense Accounts Reflection Accounts Difference Accounts
710 Direct first Art. AND Material Expenses.
720 Direct Labor Expenses
730 General Production Expenses
740 Service Production Costs
750 Research and Development Expenses
760 Market. Sales and Distribution Expenses
770 General Administrative Expenses
780 Finance Expenses 711 Direk ilk Mad.ve Malz. Gid Y. HS
721 Direct Labor Expenses Y. HS.
731 General Production Expenses Y. HS.
741 Service Production Cost Y. HS.
751 Research and Development. Expenses Y. HS
761 Sunday. Sales and Distribution. Expense Y.HS
771 General Administrative Expenses Y. HS
781 Financial Expenses Y. HS 712 Direk ilk Mad.ve Malz. Gid F. HS
722 Direct Labor Expenses F. HS
732 General Production Expenses F. HS.
742 Service Production Cost F. HS
752 Research and Development. Expenses F. HS
762 Market.Sales and Distribution. Expense F. HS
772 General Administrative Expenses F. HS
782 Financial Expenses F. HS

5.1. Types of Expenses:

While the cost expenses incurred during the production of goods and services are recorded in the functional expense accounts, these expenses are also followed up in the auxiliary books in terms of type and expense location. Types of expenses. Expenses incurred during the period will be recorded on the debit side of the expense accounts. If the entity uses estimated or standard costs, the predetermined costs will be recorded on the credit sides of the expense accounts. In this way, a comparison of the actual expenses with the previously determined expenses will be provided.

Types of Expenses Expenditure Centers
0 Primary Materials and Materials
1 Worker Wages and Expenses
2 Civil Servants’ Wages and Expenses
3 External Benefits and Services
4 Miscellaneous Expenses
5 Taxes, Duties and Fees
6 Depreciation and Depletion Shares
7 Financial Expenses 10 Main Production Costs
20 Auxiliary Production Expenditure Centers
30 Auxiliary Service Expenditure Centers
40 Investment Expense Centers
50 Production Areas Management Expense Centers
60 Research and Development Expenditure Centers
70 Marketing, Sales and Distribution Expenditure Centers
80 General Management Expenditure Centers

COST ACCOUNTS

  1. Cost Accounts: Cost accounts are the accounts in which the expenses made to bring the goods and services to the planned form and quality are collected and followed by converting them into cost elements. The expense accounts in this section are presented as two options 7/A and 7/B to provide flexibility in application. In the 7/A option, expenses are determined on the basis of function in the general ledger, and on the basis of type in the 7/B option. In this way, businesses were provided with ease in dividing expenses and monitoring them in the general ledger so that they could arrange them according to their organizational structures, sizes and needs, and a wide flexibility was given in terms of adapting to different cost calculation methods.

COST ACCOUNTS (OPTION 7/A)

  1. Cost Accounting Connection Accounts
    700. Cost Accounting Connection Account
    701. Cost Accounting Reflection Account
    71. Direct Primary Material and Material Expenses 710.
    Direct Primary Material and Material Expenses Account
    711. Direct Primary Material and Material Reflection Account
    712. Direct First Article and Material Expenditures Material Price Difference
    713. Direct First Material and Material Quantity Difference
    72. Direct Labor Expenses
    720. Direct Labor Expenses
    721. Direct Labor Expenses Reflection Account
    722. Direct Labor Wage Differences
    723. Direct Labor Time Differences
    73. General Production Expenses
    730. General Production 731.
    General Production Expenses Reflection Account
    732. General Production Expenses Budget Differences
    733. General Production Expenses Efficiency Expenses
    734. General Production Expenses Capacity Differences
    74. Service Production Cost 740. Service
    Production Cost 741.
    Service Production Cost Reflection Calculation
    742. Service Production Cost Difference Calculations
    75. Research and Development Expenses
    750. Research and Development Expenses
    751. Research and Development Expenses Reflection Account
    752. Research and Development Expenses Difference
    76. Marketing Sales And Distribution Expenses 760. Marketing Sales And
    Distribution Expenses
    761. Marketing Sales And Distribution Expenses Reflection Account
    762. Marketing Sales And Distribution Expenses Distribution Expenses Difference Calculation
    77. General Administrative Expenses
    770. General Administrative Expenses
    771. General Administrative Expenses Reflection
    Account 772. General Administrative Expenses Difference Account
    78. Financial Expenses
    780. Finance Expenses
    781. Financial Expenses Reflection Account
    782. Financial Expenses Difference Account

COST ACCOUNTING OPTION 7/A

  1. Cost Calculations in the 7/A Option: For production and service businesses with total assets exceeding 1,484,000 TL in 2008 or net sales exceeding 2,967,900 TL, they have to keep cost calculations according to 7/A option in 2009. In the 7/A option, which is mandatory for these businesses, expenses are determined on the basis of function in the main books. In this application, where simultaneous recording method is recommended, expenses are recorded in the related general ledger accounts according to “Functional Basis” as soon as they are incurred, while the said expenses are followed both on the basis of type and according to the relevant expense places in the sub-ledgers. The method will be carried out in accordance with its purpose if the sub-book records, in which the types of expenses are to be tracked, are kept in such a way as to show the expense places of the expenses. In this record management; Since expenses are monitored simultaneously according to their functions, types and related expense centers; It allows the reduction of accounting records and the creation of production and service costs of each level in a certain order.

In this application, cost account groups are partitioned as follows.

70 Cost Accounting Connection Accounts (This group is run if cost accounting works independently from the general ledger)

71 Direct Raw Material and Material Expenditures
72 Direct Labor Expenses
73 General Production Expenses
74 Service Production Costs
75 Research and Development Expenses
76 Marketing Sales and Distribution Expenses
77 General Administrative Expenses
78 Financing Expenses

In this application, the Types of Expenses to be followed in the sub-ledgers are as shown in the accounts numbered 0-9, and the Places of Expenses in the accounts numbered 10-99.

Each of the Cost Account Groups in this section is divided into expense accounts, reflection accounts and difference accounts at the G/L account level.

Expense Accounts: These accounts are the accounts in which the expenses incurred and accrued during the period are tracked and recorded in the debits. In the accounting receipts to be prepared for the records to be made to the expense accounts, the expense locations and the numbers of the expense types accounts are written together.

Expense Reflection Accounts: These accounts include all of the expenses collected in the expense accounts in cases where “actual costs” are applied; In the case of using pre-determined cost methods, it is used to ensure that the expenses determined according to these are reflected in the relevant accounts.

Difference Accounts: These accounts are the accounts in which the differences between the actual expenses and the pre-determined expenses are recorded if predetermined cost methods are applied. Difference accounts can yield debit and credit residuals.

70-Cost Accounting Connection Accounts: Accounts in this group are used to establish connections between general ledger and cost accounting, in case general ledger and cost accounting are desired to be carried out separately. The following accounts are included in the Cost Accounting Connection Accounts account group:

700 Cost Accounting Connection Account
701 Cost Accounting Reflection Account

71-Direct First Material and Material Expenses: The accounts in this group include expense, reflection and difference accounts related to the first materials and materials that are added to the product as a main ingredient and can be followed separately from economic point of view and how much of each product is consumed. The following accounts are included in the Direct Raw Material and Material Expenses account group:

710 Direct Primary Material and Material Expenses
711 Direct Primary Material and Material Reflection Calculation
712 Direct Primary Material and Material Price Difference
713 Direct Primary Material and Material Quantity Difference

72-Direct Labor Expenses: This group consists of expense, reflection and difference accounts related to labor costs that can be directly assigned to the production cost of a good or service. The following accounts are included in the Direct Labor Expenses account group:

  1. Direct Labor Expenses
    721. Direct Labor Expenses Reflection Account
    722. Direct Labor Wage Differences
    723. Direct Labor Time Differences

73-General Production Expenses: This group consists of expense, reflection and difference accounts related to the production of the enterprise and the expenses other than direct raw materials and materials and direct labor made for the services related to this production. The following accounts are included in the general production expenses account group:

  1. General Production Expenses 
    731. General Production Expenses Reflection Account
    732. General Production Expenses Budget Differences
    733. General Production Expenses Efficiency Expenses
    734. General Production Expenses Capacity Differences

74-Service Production Cost: This group is related to service enterprises. Accounts in groups 71, 72 and 73 are not used in service businesses. Accounts in this group are used instead of these accounts. Accounts used in monitoring the production costs of service enterprises are included in this group. The following accounts are included in the service production cost account group:

  1. Service Production Cost 
    741. Service Production Cost Reflection Calculation
    742. Service Production Cost Difference Calculations

75-Research and Development Expenses: This group consists of expense, reflection and difference accounts related to research and development activities. Research and development expenses account group includes the following accounts:

  1. Research and Development Expenses 
    751. Research and Development Expenses Reflection Account
    752. Research and Development Expenses Differences

76-Marketing, Sales and Distribution Expenses: Expenses incurred from the time the product is placed in stocks and the service is completed until the delivery of these goods and services to the buyers are debited to this account. At the end of the period, this account is closed by comparing it with the “761- Marketing Selling and Distribution Expenses Reflection Account”. The following accounts are included in the marketing, selling and distribution expenses account group:

  1. Marketing Sales And Distribution Expenses 
    761. Marketing Sales And Distribution Expenses Reflection Account
    762. Marketing Sales And Distribution Expenses Difference Account

77-General Administrative Expenses: Expenses of accounting and financial services, including management functions of a business, determination of business policy, organization and staffing, office services, public relations, security, legal affairs, personnel affairs, credit and collection, are debited to this account. At the end of the period, this account is closed by comparing it with the “771-Research and Development Expenses Reflection Account”. The following accounts are included in the general administrative expenses account group:

  1. General Administrative Expenses 
    771. General Administrative Expenses Reflection Account
    772. General Administrative Expenses Difference Account

78-Finance Expenses: Interest, foreign exchange differences, commissions and similar expenses related to the amounts borrowed in order to carry out the business activities without interruption are debited to this account. The following accounts are included in the financial expenses account group:

  1. Financial Expenses 
    781. Financial Expenses Reflection Account
    782. Financial Expenses Difference Account

0–9 Types of Expenses: Expense types accounts express the types of expenditures within the costs that must be incurred in the production of goods and services. These accounts are detailed in accordance with the structures of the organizations. It is possible to group expense types accounts as fixed, variable and semi-variable. The distinction between fixed, variable and semi-variable types of expenses within the groups is left to the needs and preferences of the enterprises.

The following classification is based on the coding of the expense types accounts.

Expense Accounts Groups:

0 Raw materials and materials
1 Worker’s wages and expenses
2 Civil servants’ wages and expenses
3 External benefits and services
4 Miscellaneous expenses
5 Taxes, duties and charges
6 Depreciation and depletion shares
7 Financial expenses

  1. Raw Material and Material Expenditures:Covers all kinds of direct raw materials and materials consumed in order to produce goods and services and ensure the continuity of business activities, indirect materials and outsourced works related to production.
  2. Worker Wages and Expenses: (Main labor, overtime, production premiums, bonuses, annual leave wages, S. Insurance employer premium, night premium, week holidays and general holiday wages, all kinds of social benefits and other expenses of workers) covers all kinds of amounts.
  3. Civil Servants’ Wages and Expenses:Salary managers, civil servants, office personnel, etc., employed to carry out business activities, to perform production and services. It covers all amounts accrued for
  4. External Benefits and Services:Covers expenses incurred for external benefits and services (electricity, water, gas maintenance and repair, communication, transportation and other benefits and services) in order to carry out business activities, to perform production, marketing and other services.
  5. Miscellaneous Expenses:Except for the above-mentioned expenses, it covers the expenses that are necessary to continue the business activities. Expenses such as insurance expenses, rental expenses, travel expenses, litigation and notary expenses, participation share and subscription expenses, various expenses are included in this group.
  6. Taxes, Duties and Charges:Includes taxes, duties and charges that are accrued as an expense in accordance with the legislation.
  7. Depreciation and Depletion Shares:Includes depreciation expense and depletion shares for tangible and intangible assets and special depletion assets.
  8. Financial Expenses:Includes interest, commission and exchange differences of short or long-term borrowings made by the enterprise to meet both investment and working capital needs.

Operation of Expense Types Accounts: In enterprises that apply the simultaneous recording method, expenses are recorded in the relevant functional expense accounts as they accrue, and they are recorded in the said variety accounts in the auxiliary books at the same time. It is essential to keep the auxiliary ledger records, in which the types of expenses are tracked, in a way that also shows the expense locations.

10–99 Cost Centers: An expense location refers to a unit of the organization, or a place within the unit, where production and services are performed and costs are incurred. It ensures the planning and control of expenses and the balanced collection and distribution of these expenses.

The organization chart of the organizations is generally taken as a basis in determining the expense locations.

The destinations are divided as follows.
– Main production expense centers
– Auxiliary production expense centers
– Auxiliary service expense centers
– Investment expense centers
– Production site management expense centers
– Research and development expense centers
– Marketing, sales and distribution expense centers
– General administrative expense centers

Although the above-given grouping of expense centers is essential in the division of expense centers, the expense centers to be opened in accordance with the operational field of activity of the organizations and the technological current of the activity can be included under these main group headings.

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