Ask the Accounting Community

 View Only

  • 1.  Income Statement COGS

    Posted 10-23-2023 12:45 PM

    Why would there be a negative number in the COGS? The account is named Overhead Labor Burden. I've never seen a negative number in COGS because it is already a deduction from income. 

    I would appreciate you input. Thank youi! 



    ------------------------------
    Denise Roman
    Accounting Masters Student
    Santa Fe Springs CA
    United States
    ------------------------------


  • 2.  RE: Income Statement COGS

    Posted 10-24-2023 12:41 AM

    Hello -

    Is this related to a particular question you are studying for or is this related to your job? 

    During my time studying, I've never come across a scenario like that. But I do work for a construction company and we have several burden accounts. Was there a PR that was accidentally reversed or was a there miscoded JE posted to that account?

    I agree, Labor Burden should not be a credit balance. 



    ------------------------------
    Ashley Ross
    Corporate Accounting Supervisor
    Pittsburgh PA
    United States
    ------------------------------

    Original Message


  • 3.  RE: Income Statement COGS

    Posted 10-25-2023 12:44 AM

    Hello there :In COGS - labour there are two types of expenses : directly labour cost and indirect costs.

    Direct labour cost is typically payroll stub value.

    Indirect labour costs - as the name suggests , they are costs usually that do not appear in the payroll stub. Examples are - gratuity, insurance - medical and non medical etc.

    These indirect labour costs are often called " burden costs" - not a formal nomenclature . 
    Accounting treatment - indirect labour costs are booked in Income statement on accrual basis. Example : if $ 100 is paid towards insurance and only $ 80 is accrued in the reporting year the entry would be : 

    Dr Employee Insurance AC   $ 80 ( shown in Inc st)
    Dr Pre paid insurance AC      $ 20 ( BS- current assets)

        CR cash / bank                          $ 100

    To your specific question pre paid indirect insurance is not shown as credit to COGS . It's not as per GAAP. Some small firms who do cash basis of accounting might be doing it but eventually their auditors will re adjust while doing then close.

    Hope this helps.

    Ty Dev



    ------------------------------
    Devashis ( Dev ) Chakrabarti


    ------------------------------

    Original Message


  • 4.  RE: Income Statement COGS

    Posted 10-25-2023 08:43 AM

    Hello Denise,

    Could you tell me if the Overhead Labor Burden account has always had a negative (credit) balance?

    One scenario for a negative COGS account is recognizing a portion of overhead as a part of the product or project cost. Here are a few examples:

    1) The cost of labor benefits associated with production employees.

    2) Utilities associated with production.

    3) Rent associated with manufacturing facility or manufacturing equipment.

    Sometimes these costs aren't easily attributable back to the product or project. Depending on the costing method used, a portion of the overhead cost should be charged back to the recognize the full cost of the product or project.

    In my previous company, we used standard costing. Each product had a standard cost factor for labor overhead, variable overhead, and fixed overhead. The overhead was applied back to the product cost based on pounds of product produced. The journal entry to recognize this cost back into product cost was a debit to inventory and a credit to COGS. As product was sold, the inventory overhead cost was recognized as COGS once again.

    In my current company, we use a standard rate calculated annually to determine how much overhead costs should be charged back to project cost. That rate is multiplied by our direct WIP balance (labor and materials) to determine the entry. The journal entry is a debit to WIP inventory and a credit to COGS. As the projects are shipped and COGS is recognized, the WIP overhead balance is recognized as COGS.



    ------------------------------
    Kimberly Nygard CMA, CPA, MBA
    Senior Accountant
    Systems Control
    Iron Mountain, MI
    United States
    ------------------------------

    Original Message


  • 5.  RE: Income Statement COGS

    Posted 10-24-2023 03:03 AM

    Hi Denise

    The credit balance on a cost account could be due to a reversal of excess accrual or return of overpayment. 

    It is quite udusle as we do accruals in accounting based on estimates. So sometimes the estimates coukd be more than actual costs, that is why it should be corrected as credit to PL cost account.

    I am not sure what overhead Labor burden nature of cost is, but seems that it was just corrected to reduce that overhead burden 

    Hope is helps

    Thank you

    Regards

    Gulshat 



    ------------------------------
    Gulshat Uspanova CMA
    Director/Manager
    Prague
    Czech Republic
    ------------------------------

    Original Message


  • 6.  RE: Income Statement COGS

    Posted 10-25-2023 08:29 AM

    Hi Denise,

    If the company sells inventory the burden account in COGS would probably be an offset account for the productions costs that have recorded to inventory via overhead rates. Those costs would then flush through the income statement as actual COGS when the inventory is sold. The account is set so that COGS overall is not overstated in periods when production is higher than sales.



    ------------------------------
    Christopher Rosales, CPA, CMA
    Cost Accounting Manager
    Tampa FL
    United States
    ------------------------------

    Original Message


  • 7.  RE: Income Statement COGS

    Posted 10-25-2023 09:16 AM

    Denise,

    Good morning. I hope that you are doing well. Nothing against those that have attempted to address your question to date but they are leading you possibly a wrong direction. Their responses could be correct but it is highly unlikely based upon your question. In a manufacturing environment all costs associated with the production of a widget gets compiled in the BOM. That includes direct materials, direct labor and factory overhead. With regards to fully burdened direct labor, when the payroll is recorded, the payroll expense is recognized on the income statement. Problem is that when you need to add that same labor to the BOM, you would of course debit your WIP account for that amount of the labor (including fully burdened of taxes and benefits), you need to move those expenses from the income statement to the balance sheet. That is accomplished by use of an account like you questioned. And since the other side of the debit to WIP would be a credit to an overhead account that is reducing the overall periodic expense so that it can be capitalized during production. Then when sold, COGS is recognized which would include the fully burdened labor. So if there was not a credit to the burden account you would technically be double dipping the expense. That technically can't happen as to move from the income statement to the balance sheet would require a credit….i hope that this clears up your question. Please let me know if I can be of any other assistance…



    ------------------------------
    Paul Spack
    Controller
    Houston TX
    United States
    ------------------------------

    Original Message


  • 8.  RE: Income Statement COGS

    Posted 10-25-2023 11:32 PM

    Is it a negative number due to a write-off provision?



    ------------------------------
    Duojun Nong CMA
    Analyst
    ------------------------------

    Original Message