If anyone could clarify this scenario, I would appreciate greatly.

Say a company was to transfer $10,000 from WIP to Finished goods and did a record of cost of goods sold for $12,000...

If my understanding is correct, this would cause in a 10,000 debit to WIP and a 10,000 credit to finished goods?

Any information is greatly appreciated!:)

if anyone could clarify this scenario, i would appreciate greatly.

say a company was to transfer $10,000 from WIP to Finished goods and did a record of cost of goods sold for $12,000...

if my understanding is correct, this would cause in a 10,000 debit to WIP and a 10,000 credit to finished goods?

any information is greatly appreciated!:)


WIP is an Asset Account and Finsihed Goods is an Asset Account. Debit Finshed Goods and Credit WIP.

I donot undderstand what u mean by COGS $12,000.

What you're saying doesn't make any sense. The WIP and the COGS aren't directly related. That is, you wouldn't be making an entry that encompassed both of those things. And if these were the same items/jobs, that number would also have to be the same. If one is 10K and the other is 12K, then that's not the same set of items/jobs and not at all related.

You need to study the flow of accounts more. ALL of you new manufacturing accounts are debit accounts, so you will always debit INTO them and credit OUT OF them.

It starts with materials. You debit purchases into, and credit out what goes into production.

WIP comes next. That's where you collect costs, which consist of direct material, direct labor and overhead. You debit these costs into the account, and credit out when the product/job is finished.

Finished goods comes last, of the three inventory accounts. You debit into what you have finished, and credit out when it is sold. When you credit out of finished goods when something is sold, you debit into COGS.

So the 10,000 that is finished comes out of WIP and goes into finished goods. (Your entry is backwards.) Then when it's sold, it comes out of finished goods and goes into COGS. Since you have 2 different dollar amounts, these are two different things and are separate items. So your senario doesn't really work to begin with.

[QUOTE=jjpq2;1992726]if anyone could clarify this scenario, I would appreciate greatly.

Say a company was to transfer $10,000 from WIP to Finished goods and did a record of cost of goods sold for $12,000...

If my understanding is correct, this would cause in a 10,000 debit to WIP and a 10,000 credit to finished goods?

Any information is greatly appreciated!:)[/QUOTE

Thank you to everyone who responded. The clarifications that when money is transferred in "Debit in, credit out" fashion cleared up quite a bit not only in this one scenario but others that I am working with. And my new understanding is also that COGS IS correlated to finished goods where as in my scenario, it wasn't.

Thank you Morgaine300 for your in depth answer as it really cleared up a lot for me.

You're welcome. :-)