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Cost and Management Accounting · Cost Accounting Systems

Cost Control Accounts and Ledgers for CA Intermediate

Updated 4 October 2026 · Fact-checked

A cost ledger records cost transactions in a self-contained double-entry system. Control accounts (Stores, WIP, Overhead, Finished Goods, Cost of Sales) summarise subsidiary ledgers. The other side of every entry is the General Ledger Adjustment Account. To solve questions, journalise each item, post to T-accounts, then balance.

Understand Cost Control Accounts and Ledgers

A cost ledger is the set of books in which cost transactions are recorded under double entry. In a non-integral (cost ledger) system, cost accounts are kept separately from financial accounts. Because the cost books have no cash, debtors or creditors accounts, they use one balancing account called the General Ledger Adjustment Account (also called Cost Ledger Control Account).

A control account summarises many detailed records. For example, the Stores Ledger Control Account shows total materials purchased, issued and in stock. The detailed stores ledger holds one account per item. The total of the item balances must agree with the control account balance.

The main control accounts are: Stores Ledger Control A/c (materials), Wages Control A/c (labour), Production or Factory Overhead Control A/c, Administration and Selling Overhead Control A/c, Work-in-Progress Control A/c, Finished Goods Control A/c, Cost of Sales A/c and Costing Profit and Loss A/c.

The flow is simple. Costs enter through materials, wages and expenses. Direct costs go to WIP. Indirect costs go to overhead control. Overhead is absorbed into WIP. Completed output moves from WIP to Finished Goods. Goods sold move to Cost of Sales. Sales and cost of sales meet in the Costing P&L.

Always remember one rule: every entry in the cost books has a second side either in another cost account or in the General Ledger Adjustment Account. Items that are purely financial (cash, bank, debtors, creditors, fixed assets) never appear in the cost ledger.

Key rules to remember

Purchase of materials
Stores Ledger Control A/c Dr. To General Ledger Adjustment A/c
Materials bought on credit or cash. Record at cost.
Issue of direct materials
WIP Control A/c Dr. To Stores Ledger Control A/c
Indirect materials go to Factory Overhead Control A/c instead.
Wages
Wages Control A/c Dr. To General Ledger Adjustment A/c; then WIP Control A/c Dr. (direct) and Factory Overhead Control A/c Dr. (indirect) To Wages Control A/c
Wages Control should be nil after allocation.
Overhead incurred
Factory Overhead Control A/c Dr. To General Ledger Adjustment A/c
Include only costs that belong in the cost books. Exclude purely financial items (e.g., income tax, dividends) and notional items unless the question says otherwise.
Overhead absorbed
WIP Control A/c Dr. To Factory Overhead Control A/c
Absorbed at predetermined rate.
Under/over-absorption
Under-absorbed = Actual overhead − Absorbed overhead; transfer to Costing P&L A/c
Balance on Factory Overhead Control A/c after absorption. Debit balance = under-absorption; credit balance = over-absorption.
Completed production
Finished Goods Control A/c Dr. To WIP Control A/c
Transfer at total cost of completed units.
Sales
(1) Cost of Sales A/c Dr. To Finished Goods Control A/c (cost of goods sold); (2) Cost of Sales A/c Dr. To Admin/Selling Overhead Control A/c; (3) Costing P&L A/c Dr. To Cost of Sales A/c (total of (1) and (2)); (4) General Ledger Adjustment A/c Dr. To Costing P&L A/c (sales value)
Finished Goods is credited only with the cost of goods sold, at cost. Admin and selling overhead reach Cost of Sales through entry (2), not through Finished Goods. The total Cost of Sales is then closed to Costing P&L by entry (3). Sales are shown at selling price and credited to Costing P&L by entry (4).
Selling and administration overhead
Admin/Selling Overhead Control A/c Dr. To General Ledger Adjustment A/c; then Cost of Sales A/c Dr. To Admin/Selling Overhead Control A/c
These are normally charged to Cost of Sales, not WIP.
Costing profit
Costing profit = Sales − Cost of Sales − Under-absorbed overhead (+ over-absorbed overhead)
The balance of Costing P&L A/c is transferred to General Ledger Adjustment A/c. A profit is credited to GLA A/c; a loss is debited to GLA A/c.

How to solve Cost Control Accounts and Ledgers questions

Use this method for any cost ledger question. Work in journal entries first, then post to ledgers.

  1. 1List the opening balances given and put them in the relevant T-accounts (Stores, WIP, Finished Goods, and the General Ledger Adjustment A/c).
  2. 2Read the transactions one by one. Ignore purely financial items such as payment to creditors or receipt from debtors.
  3. 3Write each journal entry with the correct pair of accounts. Use General Ledger Adjustment A/c where cash, creditors or debtors would normally appear.
  4. 4Split wages and materials into direct (to WIP) and indirect (to Factory Overhead Control).
  5. 5Absorb overhead into WIP at the stated rate or percentage. Find the under- or over-absorption as the balance on the overhead account.
  6. 6Transfer completed production to Finished Goods and sold goods at cost to Cost of Sales. Take selling and admin overhead to Cost of Sales.
  7. 7Prepare the Costing P&L A/c with sales, cost of sales and overhead difference. Find the profit and close it to General Ledger Adjustment A/c.
  8. 8Balance every account and check that the trial balance of the cost ledger agrees (debits equal credits).

Quickest way: T-account flow method

When to use it: Use this under time pressure for both MCQs and long ledger questions.

  1. Draw the T-accounts in a row: GLA, Stores, Wages, Overhead, WIP, Finished Goods, Cost of Sales, Costing P&L. Leave space.
  2. Post each transaction as a Dr and Cr pair directly, with a short narration. Skip full journals unless asked.
  3. For MCQs, find the one account asked for and trace only the items touching it. Check which side the balance falls.
  4. Remember that purchases credit GLA, issues credit Stores, and absorption credits Overhead. Most MCQs test these three.
  5. In the written answer, show journal entries and the ledger accounts with clear headings. Step marks are awarded for each correct entry and the balancing figures.
  6. Finish by checking that total debits equal total credits in the cost ledger.

Common mistakes in Cost Control Accounts and Ledgers

  • Posting cash, debtors or creditors in the cost ledger

    Students copy financial accounting habits.

    Fix: Use General Ledger Adjustment A/c as the other side of every external item.

  • Taking indirect materials or wages to WIP

    Students ignore the direct/indirect split.

    Fix: Only direct items go to WIP. Indirect items go to Factory Overhead Control.

  • Debiting WIP with actual overhead instead of absorbed overhead

    Students want the books to agree with actual spending.

    Fix: Debit WIP with overhead absorbed at the predetermined rate. Show the difference as under- or over-absorption.

  • Getting the direction of under- and over-absorption wrong

    Students mix up Dr and Cr balances.

    Fix: If actual exceeds absorbed, the overhead account has a debit balance, which is a loss to Costing P&L. The reverse is a gain.

  • Transferring sold goods to Cost of Sales at selling price

    Students forget that cost books hold cost values.

    Fix: Credit Finished Goods at cost. Bring in sales value only in Costing P&L.

  • Charging selling and administration overhead to WIP

    Students treat all overhead as production cost.

    Fix: Take these to Cost of Sales unless the question says to absorb them in production.

Worked examples

Example 1

Opening balances in a cost ledger: Stores ₹50,000; WIP ₹30,000; Finished Goods ₹40,000. Transactions: materials purchased ₹1,00,000; direct materials issued ₹80,000; indirect materials issued ₹10,000; wages paid ₹60,000 (direct ₹45,000, indirect ₹15,000); factory overheads incurred ₹35,000 (excluding indirect materials and wages above). Overhead is absorbed at 100% of direct wages. Show the journal entries and find the overhead under- or over-absorbed.

Show the solution
  1. Purchases: Stores Control Dr. ₹1,00,000 To GLA ₹1,00,000.
  2. Direct materials: WIP Dr. ₹80,000 To Stores Control ₹80,000. Indirect materials: Factory Overhead Dr. ₹10,000 To Stores Control ₹10,000.
  3. Wages: Wages Control Dr. ₹60,000 To GLA ₹60,000. Then WIP Dr. ₹45,000 and Factory Overhead Dr. ₹15,000 To Wages Control ₹60,000.
  4. Overhead incurred: Factory Overhead Dr. ₹35,000 To GLA ₹35,000.
  5. Actual overhead = 10,000 + 15,000 + 35,000 = ₹60,000.
  6. Absorbed overhead = 100% × ₹45,000 = ₹45,000. Entry: WIP Dr. ₹45,000 To Factory Overhead ₹45,000.
  7. Under-absorption = 60,000 − 45,000 = ₹15,000. Entry: Costing P&L Dr. ₹15,000 To Factory Overhead ₹15,000.
  8. Closing Stores = 50,000 + 1,00,000 − 80,000 − 10,000 = ₹60,000.
  9. Total debits to WIP = opening 30,000 + direct materials 80,000 + direct wages 45,000 + absorbed overhead 45,000 = ₹2,00,000. This is used in the next example.

Answer: Overhead under-absorbed is ₹15,000, transferred to Costing P&L A/c as a loss. Closing stores is ₹60,000. Total WIP available is ₹2,00,000.

Example 2

Continuing from the data of the previous example (total WIP debits ₹2,00,000), completed production cost ₹1,50,000 was transferred to Finished Goods. Closing WIP is the balancing figure. Goods costing ₹1,60,000 were sold for ₹2,00,000. Administration overhead incurred was ₹12,000. Find the closing WIP, the Finished Goods Control A/c balance and the costing profit, treating under-absorbed overhead of ₹15,000 as a charge.

Show the solution
  1. Work-in-Progress: total debits ₹2,00,000 less transfer to Finished Goods ₹1,50,000 = closing WIP ₹50,000.
  2. Finished Goods: Opening ₹40,000 + transfer from WIP ₹1,50,000 = ₹1,90,000.
  3. Cost of goods sold ₹1,60,000 is credited to Finished Goods. Closing balance = 1,90,000 − 1,60,000 = ₹30,000.
  4. Entry: Cost of Sales Dr. ₹1,60,000 To Finished Goods ₹1,60,000.
  5. Administration overhead: Admin Overhead Control Dr. ₹12,000 To GLA; then Cost of Sales Dr. ₹12,000 To Admin Overhead Control.
  6. Total Cost of Sales = 1,60,000 + 12,000 = ₹1,72,000.
  7. Costing P&L: Sales ₹2,00,000 less Cost of Sales ₹1,72,000 = ₹28,000.
  8. Less under-absorbed overhead ₹15,000 = ₹13,000 profit.

Answer: Closing WIP is ₹50,000. Closing Finished Goods is ₹30,000. Costing profit is ₹13,000, which is transferred to General Ledger Adjustment A/c.

Exam tips

  • Write the full account title, such as Work-in-Progress Control A/c, and not just WIP. Examiners give marks for correct titles and sides.
  • Always show the General Ledger Adjustment A/c as the other side of external items. Missing it is the most common lost mark.
  • For MCQs, ask: which account gets debited and what is its balance? Most answers come from one T-account.
  • Show the overhead account balance as a separate working so that you earn marks for under- or over-absorption even if later figures go wrong.
  • Check the question for whether wages and overheads are given in total or already split. Split only when needed.

Practice questions from Cost Accounting Systems

Cost Control Accounts and Ledgers in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Cost Control Accounts and Ledgers: frequently asked questions

What is a cost ledger?

It is the ledger that holds cost accounts under double entry in a non-integral system. It records only cost items such as materials, wages and overheads. External items are balanced through the General Ledger Adjustment Account.

What is the General Ledger Adjustment Account?

It is the account in the cost ledger that takes the place of all financial accounts such as cash, creditors and debtors. It is also called Cost Ledger Control Account. Its balance should agree with the net balance of the cost accounts.

What is the entry for absorbing overheads in WIP?

Debit Work-in-Progress Control A/c and credit Factory Overhead Control A/c with the amount absorbed at the predetermined rate. The balance left on the overhead account is the under- or over-absorbed amount.

Where do selling and distribution overheads go in the cost ledger?

They are collected in a separate control account and then transferred to Cost of Sales A/c, unless the question asks you to absorb them in production. They are not normally part of WIP.