ECONOMICS

Detailed explanation-1: -As the overhead costs are actually incurred, the Factory Overhead account is debited, and logically offsetting accounts are credited.

Detailed explanation-2: -The manufacturing overhead account is used to bridge the gap between the irregular way overhead costs are incurred and the regular systematic application or allocation of overhead costs to units of production. The overhead account is debited for the actual overhead costs as incurred.

Detailed explanation-3: -Actual overhead is recorded as a debit to the overhead account and credit for various accounts. Example entry on recording of indirect labor, which is an overhead cost, would be a debit to Manufacturing Overhead and credit to Wages payable if not yet paid.

Detailed explanation-4: -According to generally accepted accounting principles (GAAP), manufacturing overhead must be included in the cost of Work in Process Inventory and Finished Goods Inventory on a manufacturer’s balance sheet, as well as in the Cost of Goods Sold on its income statement.