Cost Accounting · Integrated Accounting System

Journal Entries for Materials, Wages and Overheads in Integrated Accounting

Updated 10 October 2026 · Fact-checked

In integrated accounting, one set of books records both cost and financial transactions. You pass entries through control accounts: debit Stores Control for purchases, then credit it when materials are issued to WIP or overheads. Wages Control works the same way. Absorbed overheads go to WIP, and the under or over absorbed balance goes to Costing Profit and Loss.

Understand Journal Entries for Materials, Wages and Overheads

Integrated accounting means you keep one set of books for both financial and cost records. There is no separate cost ledger and no reconciliation statement, because every transaction is recorded once. Cost items are tracked through control accounts such as Stores Ledger Control A/c, Wages Control A/c, Factory Overhead Control A/c, Administration Overhead Control A/c and Work-in-Progress (WIP) Control A/c.

Think of each control account as a holding tank. Costs flow in when you buy materials, pay wages or incur expenses. They flow out when you charge them to a product (direct) or to overheads (indirect). A good entry always answers two questions: where did the cost come from, and where is it going?

For materials, the purchase debits Stores Control. A direct issue moves cost to WIP Control. An indirect issue moves it to Factory Overhead Control. For wages, the gross amount is first debited to Wages Control, with the credit going to bank and to liabilities for deductions such as provident fund. Then you split Wages Control into direct, factory indirect and administration wages.

For overheads, actual expenses are debited to the overhead control accounts. Overhead is charged to WIP at a predetermined rate, crediting the Factory Overhead Absorbed A/c. This account is then closed by transferring it to Factory Overhead Control A/c, so the control account shows only the difference between actual and absorbed overhead. That difference is under absorption (actual is more) or over absorption (absorbed is more). Exam answers normally transfer this balance to Costing Profit and Loss A/c.

Key rules to remember

Purchase of materials: Stores Ledger Control A/c Dr; To Creditors / Bank; Record at the cost of purchase, including any cost-related expenses the question tells you to include.
Issue of materials: Direct: WIP Control A/c Dr; Indirect: Factory Overhead Control A/c Dr; To Stores Ledger Control A/c; Indirect materials for the office go to Administration Overhead Control instead.
Payment of wages: Wages Control A/c (gross) Dr; To Bank (net); To PF / ESI / TDS payable (deductions); Debit the gross wages, not the net amount paid.
Allocation of wages: WIP Control (direct) Dr; Factory OH Control (indirect) Dr; Admin OH Control Dr; To Wages Control A/c; The Wages Control account must close to nil after the analysis.
Absorption of factory overhead: WIP Control A/c Dr; To Factory Overhead Absorbed A/c; Amount = predetermined rate × actual base, such as direct wages or machine hours.
Closing the absorbed account to control: Factory Overhead Absorbed A/c Dr; To Factory Overhead Control A/c; Pass this before the under or over absorption entry. It closes the Absorbed account, so Factory Overhead Control shows only the difference.
Under absorption: Costing Profit and Loss A/c Dr; To Factory Overhead Control A/c; Actual overhead exceeds absorbed overhead. This is a loss. Pass it after closing the Absorbed account to Control.
Over absorption: Factory Overhead Control A/c Dr; To Costing Profit and Loss A/c; Absorbed overhead exceeds actual overhead. This is a gain. Pass it after closing the Absorbed account to Control.
Under / over absorption amount: Actual overhead − Absorbed overhead; A positive result is under absorption. A negative result is over absorption.

How to solve Journal Entries for Materials, Wages and Overheads questions

Use this order for any integrated accounting journal question on materials, wages and overheads.

1Read the whole question and list every transaction in date or logical order. Note whether items are bought on credit or for cash.
2For each transaction, decide the two accounts affected. Use control accounts, not the product or department, as the debit or credit.
3Pass material entries first: purchase to Stores Control, then issues to WIP (direct) or overhead control accounts (indirect), and returns.
4Pass wage entries: debit gross wages to Wages Control, credit bank and deduction liabilities, then analyse Wages Control into direct, factory and administration wages.
5Debit actual overheads to Factory and Administration Overhead Control accounts. Then calculate absorbed overhead using the given rate and base, and debit WIP, crediting Factory Overhead Absorbed A/c.
6Close Factory Overhead Absorbed A/c to Factory Overhead Control A/c. Then find the difference between actual and absorbed overhead, label it under or over absorbed and transfer it to Costing Profit and Loss A/c.
7Check that each control account balance is as expected (Stores has the closing stock, Wages Control and overhead accounts are nil). Write a short narration for each entry.

Quickest way: Debit-where-it-goes shortcut

When to use it: Use it in MCQs and in long entry lists when time is short.

Ask first: is the cost direct or indirect? Direct goes to WIP Control. Factory indirect goes to Factory Overhead Control. Office indirect goes to Administration Overhead Control.
The credit is almost always the account the cost came from: Stores Control, Wages Control, bank or creditors.
For absorption, the debit is always WIP and the credit is the Factory Overhead Absorbed account. Then close it to Factory Overhead Control.
For the closing balance, compare actual with absorbed. Actual higher means debit Costing P&L (under). Absorbed higher means credit Costing P&L (over).

Common mistakes in Journal Entries for Materials, Wages and Overheads

Debiting net wages instead of gross wages to Wages Control.
Students focus on the cash paid and ignore the deductions.
Fix: Always debit the gross wages. Credit bank with the net amount and credit each deduction to its own liability account.
Debiting indirect materials to WIP.
Students treat every issue from stores as production.
Fix: Check the question for words like 'indirect', 'consumables' or 'factory repairs'. These go to Factory Overhead Control.
Reversing the under and over absorption entry.
Students are unsure whether the loss is debited or credited.
Fix: Under absorption is a loss, so debit Costing P&L. Over absorption is a gain, so credit Costing P&L.
Absorbing overhead on the actual overhead amount instead of the base.
Students confuse the absorption rate with the actual cost.
Fix: Absorbed overhead = predetermined rate × actual base (wages, hours). Do not use actual overhead cost for this.
Leaving balances in Wages Control, overhead control or Overhead Absorbed accounts.
Students stop after paying wages, incurring expenses or crediting the Absorbed account.
Fix: Complete the allocation entries and close Factory Overhead Absorbed A/c to Factory Overhead Control A/c. Check that these accounts close to nil, except for the under or over absorbed balance, which goes to Costing P&L.
Posting material returns to the wrong account.
Students forget that returns reverse the earlier entry.
Fix: Return to store: debit Stores Control, credit WIP. Return to supplier: debit Creditors, credit Stores Control.

Worked examples

Example 1

A company purchased materials worth ₹5,00,000 on credit. It issued ₹3,20,000 to production and ₹40,000 as indirect materials for the factory. Materials worth ₹10,000 were returned to stores from production. Gross wages were ₹2,00,000. Employee PF and ESI deductions were ₹16,000 and ₹4,000 respectively. Wages are analysed as direct ₹1,40,000, factory indirect ₹40,000 and administration ₹20,000. Pass the journal entries and find the balance in Stores Control (opening stock nil).

Show the solution

Purchase: Stores Ledger Control A/c Dr ₹5,00,000; To Creditors ₹5,00,000.
Direct issue: WIP Control A/c Dr ₹3,20,000; To Stores Ledger Control A/c ₹3,20,000.
Indirect issue: Factory Overhead Control A/c Dr ₹40,000; To Stores Ledger Control A/c ₹40,000.
Return from production: Stores Ledger Control A/c Dr ₹10,000; To WIP Control A/c ₹10,000.
Wages paid: Wages Control A/c Dr ₹2,00,000; To Bank ₹1,80,000; To PF Payable ₹16,000; To ESI Payable ₹4,000. Net paid = 2,00,000 − 16,000 − 4,000 = ₹1,80,000.
Wages analysis: WIP Control A/c Dr ₹1,40,000; Factory Overhead Control A/c Dr ₹40,000; Administration Overhead Control A/c Dr ₹20,000; To Wages Control A/c ₹2,00,000.
Stores balance = 5,00,000 − 3,20,000 − 40,000 + 10,000 = ₹1,50,000.

Answer: Entries passed as above. Stores Ledger Control A/c shows a closing debit balance of ₹1,50,000, and Wages Control A/c closes to nil.

Example 2

Continue from the previous question. Other factory expenses paid by bank were ₹1,00,000 and factory depreciation was ₹30,000. Factory overhead is absorbed at 120% of direct wages. Administration expenses paid by bank were ₹60,000 (the ₹20,000 administration wages are separate). Pass entries for overheads, absorption, under or over absorption, and transfer of administration overhead. Administration overhead is to be written off to Costing P&L A/c.

Show the solution

Factory expenses: Factory Overhead Control A/c Dr ₹1,00,000; To Bank ₹1,00,000.
Depreciation: Factory Overhead Control A/c Dr ₹30,000; To Provision for Depreciation ₹30,000.
Actual factory overhead = indirect materials 40,000 + indirect wages 40,000 + expenses 1,00,000 + depreciation 30,000 = ₹2,10,000.
Absorbed overhead = 120% × ₹1,40,000 = ₹1,68,000.
Absorption: WIP Control A/c Dr ₹1,68,000; To Factory Overhead Absorbed A/c ₹1,68,000.
Transfer absorbed overhead to control: Factory Overhead Absorbed A/c Dr ₹1,68,000; To Factory Overhead Control A/c ₹1,68,000.
Under absorption = 2,10,000 − 1,68,000 = ₹42,000. Entry: Costing Profit and Loss A/c Dr ₹42,000; To Factory Overhead Control A/c ₹42,000. Control now has debits ₹2,10,000 and credits 1,68,000 + 42,000 = ₹2,10,000, so it closes to nil.
Administration expenses: Administration Overhead Control A/c Dr ₹60,000; To Bank ₹60,000. Total administration overhead = 60,000 + 20,000 wages = ₹80,000.
Write-off as the question requires: Costing Profit and Loss A/c Dr ₹80,000; To Administration Overhead Control A/c ₹80,000.

Answer: Factory overhead is under absorbed by ₹42,000, debited to Costing P&L A/c. As the question instructs, administration overhead of ₹80,000 is also written off to Costing P&L A/c. Factory Overhead Absorbed A/c and both overhead control accounts close to nil. If a question asks you to include administration overhead in the cost of production instead, charge it to Finished Goods.

Exam tips

In the MCQ section, work out only the debit account. The first option that debits the correct control account usually decides the answer.
In written answers, put the account names in full (for example, Wages Control A/c) and add a one-line narration. This earns step marks even if a figure is wrong.
Show working for the gross wages, net payment and absorbed overhead separately, so the examiner can give partial marks.
Read how the question treats under or over absorbed overhead. Follow it, for example by transferring to Costing P&L A/c or carrying forward, and state your assumption.
Finish with a quick check that Wages Control, Factory Overhead Absorbed and the overhead control accounts have nil balances.

Practice questions from Integrated Accounting System

Journal Entries for Materials, Wages and Overheads in other exams

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

CSEETJournal and Journal Entries

Journal Entries for Materials, Wages and Overheads: frequently asked questions

What is the difference between integrated and non-integrated accounting?

In integrated accounting, one set of books holds both cost and financial records, so no reconciliation is needed. In non-integrated accounting, the cost ledgers are kept separately and tied to the financial books through a reconciliation statement.

How do you pass the journal entry for under absorption of overheads in integrated accounts?

First close Factory Overhead Absorbed A/c to Factory Overhead Control A/c. Then calculate actual overhead minus absorbed overhead. If actual is higher, debit Costing Profit and Loss A/c and credit Factory Overhead Control A/c with the shortfall. Over absorption is the reverse entry.

Which account is debited when wages are paid in integrated accounting?

Debit Wages Control A/c with the gross wages. Credit bank with the net amount and credit each statutory deduction, such as PF, to its payable account. Then analyse Wages Control into direct and indirect wages.

Is the entry for absorbing overhead into WIP the same for factory and administration overhead?

Factory overhead is normally absorbed into WIP using a rate. Administration overhead is usually charged to finished goods or transferred to Costing P&L A/c, depending on what the question states. Follow the question's instruction.