Accounting 26th Edition by Carl Warren ,Jim Reeve ,Jonathan Duchac

Exercise 21

Recording manufacturing costs
Todd Lay just began working as a cost accountant for Enteron Industries Inc., which manufactures gift items. Todd is preparing to record summary journal entries for the month. Todd begins by recording the factory wages as follows:

Then the factory depreciation:

Todd's supervisor, Jeff Fastow, walks by and notices the entries. The following conversation takes place:
Jeff: That's a very unusual way to record our factory wages and depreciation for the month.
Todd: What do you mean This is exactly the way we were taught to record wages and depreciation in school. You know, debit an expense and credit Cash or payables, or the case of depreciation, credit Accumulated Depreciation
Jeff: Well, It's not the credits I'm concerned about. It's the debits-I don't think you've recorded the debits correctly. I wouldn't mind if you were recording the administrative wages or office equipment depreciation this way, but I've got real questions about recording factory wages and factory machinery depreciation this way.
Todd: Now I'm really confused. You mean this is correct for administrative costs, but not for factory costs Well, what am I supposed to do-and why
1. Play the role of Jeff and answer Todd's questions.
2. Why would Jeff accept the journal entries if they were for administrative costs