The cost accounting cycle embraces activities connected with verification and preparation of source documents, their journalizing, and their posting to control accounts and subsidiary ledgers.

The cycle continues with the closing of accounts and presenting results of operations of the accounting period in the form of the income statement.

Period Covered by Cost Accounting Cycle

An accounting period is the window of time covered by an income statement.

Generally, a company’s cost accounting department will prepare income statements on a monthly basis. As the length of a month varies from 28 days to 31 days, cost accountants sometimes divide the year into 13 equal periods of 4 weeks.

This helps to make income statements and other reports more comparable.

It is common to take one month as the accounting period to demonstrate the cost accounting cycle.

Control Accounts Used in Cost Accounting Cycle

The control accounts used in the cost accounting cycle are:

  1. Materials control account
  2. Payroll control account
  3. Factory overhead control
  4. Factory overhead applied account
  5. Work in process control account
  6. Finished goods control accounts
  7. Cost of goods sold control account
  8. Sales control account
  9. Sales overhead control account
  10. Administrative overhead control account
  11. Income summary account (to close accounts of expenses and revenues at the end of the accounting year)

Frequently Asked Questions

What is the purpose of a Cost Accounting Cycle?

The Cost Accounting Cycle is a sequence of activities that describes the preparation and analysis of financial data. It ensures that financial information for use by investors, creditors, management, and other interested parties are accurate and timely.

Why do companies need to close out their costs at year-end?

Closing out costs helps companies to: prepare annual statements and reports. Improve decision-making by management. Prioritize improvement efforts in cost reduction, quality, and customer satisfaction.

What is a Cost Accounting Cycle?

A Cost Accounting Cycle encompasses all the activities related to the verification, recording, and analysis of an organization's financial information.

What is the period covered by the Cost Accounting Cycle?

An accounting period is the window of time covered by an income statement. Generally, a company's Cost Accounting department will prepare income statements on a monthly basis. As the length of a month varies from 28 days to 31 days, some companies divide the year into 13 equal periods of 4 weeks. This helps to make income statements and other reports more comparable. It is common to take one month as the accounting period to demonstrate the Cost Accounting Cycle.

What are control accounts used for?

Control accounts are used to record the detailed transaction of transactions that are of significance to the management of the organization.

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