Underapplied Manufacturing Overhead Journal Entry

This video shows how to record a journal entry to dispose of an underapplied manufacturing overhead balance, either by transferring the balance to Cost of Goods Sold or prorating the balance among accounts.

At the end of a period, the actual manufacturing overhead will most likely be different than the amount of manufacturing overhead that was applied to jobs. This should be accounted for by closing out the manufacturing overhead account, which is a temporary account. For example, if manufacturing overhead was underapplied, then the manufacturing overhead account will have a debit balance - it can thus be closed out by crediting manufacturing overhead and debiting Cost of Goods Sold. Alternatively, the under (or over) applied manufacturing overhead balance can be prorated among Work-in-Process Inventory, Finished Goods Inventory, and Cost of Goods Sold.—
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