prepare the necessary journal entry to close the overhead account if the balance is considered immaterial
To prepare the necessary journal entry to close the overhead account when the balance is considered immaterial, you would typically follow these steps:
Step 1: Determine if the balance is truly immaterial. Consult your company's financial policies and guidelines to define what is considered an immaterial amount.
Step 2: Verify that closing the overhead account will not violate any accounting principles or legal requirements. It's important to ensure that closing the account will not impact the accuracy and completeness of financial statements.
Step 3: If the balance is confirmed to be immaterial and the decision to close the account is appropriate, you can proceed with the journal entry.
Step 4: Review the account balances in the overhead account to ensure that all necessary expenses and allocations related to overhead have been recorded.
Step 5: Determine the appropriate account(s) to transfer the balance. Generally, the balance is transferred to the Cost of Goods Sold (COGS) account, but this may vary depending on your company's specific accounting practices.
Step 6: Prepare the journal entry, debiting the overhead account for its balance and crediting the appropriate account(s) to transfer the balance.
Here is an example of how the journal entry may look:
CR: Overhead Account (with the immaterial balance)
DR: Cost of Goods Sold (or other designated account)
It's important to consult with your company's accounting or financial team to ensure that the specific accounts and amounts for the journal entry align with your organization's policies and requirements.