What is the double entry to record direct labour?

What is the double entry to record direct labour?

• A. Dr wages, Cr production
• B. Dr overheads, Cr wages
• C. Dr production/WIP, Cr wages
• D. Dr WIP, Cr wages

Answer: (C)

Direct labour is a direct manufacturing cost that must be attached to the goods being produced. As labour is applied to production, its cost is added to the Work in Progress (WIP) or Production account, not kept as a separate expense. The correct entry reflects this by debiting the production (or WIP) account to increase the asset that holds the unfinished goods and crediting wages to show the cost has been incurred against production. This keeps labour costs in line with the revenue-earning activity they relate to. Overheads would not be debited for direct labour because it is a direct cost, not an indirect one. So the standard recording is Dr production/WIP, Cr wages (and in practice, if wages have already been paid, you’d later debit Wages expense and credit cash; the allocation to production is what this entry captures).

Direct labour is a direct manufacturing cost that must be attached to the goods being produced. As labour is applied to production, its cost is added to the Work in Progress (WIP) or Production account, not kept as a separate expense. The correct entry reflects this by debiting the production (or WIP) account to increase the asset that holds the unfinished goods and crediting wages to show the cost has been incurred against production. This keeps labour costs in line with the revenue-earning activity they relate to. Overheads would not be debited for direct labour because it is a direct cost, not an indirect one. So the standard recording is Dr production/WIP, Cr wages (and in practice, if wages have already been paid, you’d later debit Wages expense and credit cash; the allocation to production is what this entry captures).