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:
- Materials control account
- Payroll control account
- Factory overhead control
- Factory overhead applied account
- Work in process control account
- Finished goods control accounts
- Cost of goods sold control account
- Sales control account
- Sales overhead control account
- Administrative overhead control account
- Income summary account (to close accounts of expenses and revenues at the end of the accounting year)