Cost Accounting

Cost accounting is a calculation and recording system that allows the classification and monitoring of the costs incurred in the entire period from the purchase of the products or services produced in a business to their production and sale.

Expense/Cost/Loss Concepts

Expense is the expenditure and consumption of a business's activities carried out for profit or benefit. Cost is the monetary sum of all expenditures made. If the expenses exceed the profit limit and unnecessary expenses occur, this situation is expressed with the concept of loss.

Keeping costs under control and real-time monitoring is vital for a business. Basically, Cost Accounting is the results that appear mostly at the end of the period in the accounting chart of accounts. With these results, the profit/loss and the taxes to be paid are calculated.

Cost results; While costs are determined by cost accounting records, costs occur during operations. In other words, costs occur while buying, selling, producing, and paying salaries. In W3, many business functions such as Expense Receipts, Production Receipts, Expenses in Bank transactions send real-time cost records to the ledger accounts. In addition, there are functions that create cost records by taking operational system data that forms the basis of cost accounting triggered by users. These functions are as follows;

• Cost Accounting of Sold Goods
• Production Labor Cost Reflection
• Reflect Production Costs
• Accounting of Production Results

These functions, allow calculating the cost and production costs of the goods sold at certain intervals and allows accountants to issue period-end cost accounting receipts.

Direct and Indirect Costs and Reflection
Many expenses affect the cost of goods sold or produced. In addition to the direct costs such as purchased products, raw materials, consumables, labor expenses, and energy, there are also expenses that must be indirectly reflected in the cost of goods such as rent, financing, and administrative expenses. Direct costs are added directly to the cost of goods when purchase invoices, production receipts, inventory receipts are posted. However, many expenses such as rent paid at the end of the month and interest paid at the end of the period are not immediately reflected in the cost of production of goods sold. In addition, since many expenses are made collectively, reflecting them on each product creates a problem in itself. For this reason, accounting reflection receipts are issued. Appropriate tools have been developed in W3 to easily create reflection receipts.

Inventory Method and Its Importance
There are two approaches to the inventory method, continuous and intermittent. In the continuous inventory method, the cost is calculated after each sale, while in the intermittent method, the inventory costs are calculated at once at the end of the period. Both methods yield the same results.

While recording products in W3, the inventory method is selected. The real-time cost of goods sold is calculated according to the "Weighted Average" or "FIFO - First In First Out" principles and recorded during the sales transaction. Thus, the profit/loss of each sale can be monitored.

The objectives of cost calculations can be listed as follows:

• To determine the costs of the goods or services produced,
• Calculating the values of those in the inventory,
• Assisting in the preparation of future budgets,
• Keeping expenses under control,
• Developing methods to reduce costs,
• To provide managers with regular, effective, and reliable information on cost.

Calculations starting with 7 in accounting calculations are cost calculations.
Cost calculations application is divided into two as 7/A and 7/B in order to provide flexibility. 7/A option monitors costs on the basis of function, and 7/B option monitors costs on the basis of expense types. While the 7/A option is used in production and service businesses whose total assets and net sales exceed certain amounts, the 7/B option is used in production and service businesses whose total assets and net sales do not exceed certain amounts. There is a reflection account for each account in the 7/A option, but a single reflection account is used in the 7/B option. The only common account in both options is Financial Expenses.

Relationship between budget items and cost accounting calculations:
While creating budget categories and items, accounting calculation codes are selected. Expense Receipts assign records directly to cost accounting with selected accounting codes.

Relationship between product accounting codes and cost accounting:
While selecting the accounting codes for the products, the accounting calculations related to cost accounting are selected. These accounting codes are:

Raw materials

Material Losses

Consumables

Production / Goods

Production / Semi-Finished Goods

Cost of Goods Sold

Scrap Account

Direct First Material Account

Direct First Material Account Reflection Calculation

General Production Costs Reflection Account

Production Labor Reflection Calculation

Warning

Cost accounting calculations should be planned under the supervision of accountants and financial advisors and should be planned in line with the unique needs of the business.

Case Study:
In January, a malfunction occurred in a machine that produces intermediate products in a paint-producing company. USD 5,000 was paid to fix the defect. In the same period, 10 tons of raw materials were purchased from the supplier for 100,000 USD, and 3,000 USD was spent on transportation. 8 tons of this raw material was used to produce paint. An electricity bill of USD 3,000 was paid to the factory. 3 workers worked in the production. The workers were paid a salary of 6,000 USD. At the end of this month, 8 tons of paint were produced. 6 shades of paint have been sold. The selling price of the paint is 7 USD per kg. This case requires the use of the following W3 functions and their impact on the cost accounting entries is as follows.

Before Use:
Before performing cost operations in W3, the following definitions must be made correctly.

• Product Inventory Methods
• Product Accounting Code Definitions
• Definitions of Transaction Types (Using the Cost option)

Module Functions

• Cost Accounting of Sold Goods
• Production Labor Costs Reflection
• Production Cost Reflection
• Accounting of Production Results

Associated Functions in Other Modules

• Cost and Price Management/Product Costs
• Accounting Transactions/Accounting Receipts
• Expense and Revenue Transactions/Expense Receipt
• Credit Management/Loan Payment
• Invoice/Purchase Invoice
• Production/Production Result Receipts

Tip: Accounting for the cost of goods sold in W3 can be created instantly when the document is recorded, or collectively at the end of the period, as needed. In order for it to occur instantly, the option “Make accounting transaction of the cost of the goods sold” is selected from the details of the relevant transaction type.

Tip: You can reflect the invoice costs to the product cost by entering the expenses related to the invoice in the “Invoice Costs and Expenses” tab from the invoice detail. The reflection of these expenses on the product cost is as follows:

(Total Cost x Unit Price of Product in Row) / Total Row Amount of All Rows

Tip: Costs can consist of both the delivery note and the invoice. The cost incurred when a delivery note is posted is updated over the amount on the invoice when the delivery note is posted to the invoice.

Warning
The cost estimation of a manufactured product in the bill of materials, it is created instantaneously by considering the final costs of the raw materials and semi-finished products in the BOM. If any, the cost of production and station costs are added to these raw material costs. However, when the cost of the same product is viewed from the product card, it will not give the same result as the cost estimation, as it will consist of reflections made in the final production and cost accounting.

In summary, the cost in the bill of materials creates a cost by making predictions from the immediate costs. The cost in the cost history may be different because it will show a cost that occurred before that date.

Suggestion
When a document that performs a historical cost transaction is recorded in the system, a cost record is created on that date. In addition, all costs created after that date are updated and costs from the newly added document are also taken into account. Likewise, deleted or canceled documents delete the cost records they created. For these reasons, in order to track inventory costs accurately, a cost regeneration process should be performed under Maintenance Transaction at certain periods.