Question

A company’s Factory Overhead account shows total debits of \(624,000 and total credits of \)646,000 at the end of the year. Prepare the journal entry to close the balance in the Factory Overhead account to Cost of Goods Sold.

Short answer

The journal entry will includedebit of factory overheadthat will increase the expense account, andcrediting the cost of goods soldwill decrease the expense account.

Step-by-step solution

Definition of Underapplied Overheads

When the estimated overheads exceed a business entity's actual overheads, the situation is termed underapplied overhead. This underestimation is adjusted by passing a journal entry that will increase the cost of goods sold.

Journal entry to close the balance in the factory overhead account to the cost of goods sold

Date	Accounts and Explanation	Debit ($)	Credit ($)
	Factory overhead$\mathbf{(}\mathbf{\$}\mathbf{646}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{624}\mathbf{,}\mathbf{000}\mathbf{)}$	22,000
	Cost of goods sold		22,000