Transfer of Materials Cost to Finished Production--Inventory Valuation:

The ultimate, intended destination of direct materials is finished products or finished goods delivered to customers. The cost of materials used on each job or in each department is transferred from the materials requisition to the job order cost sheet or to the cost of production report. When the job or process is completed, the effect of materials used, as well as labor distributed and factory overhead applied, is expressed this entry:

Finished Goods	xxx	Dr
	Work in process	xxx Cr

In production devoted to filling specific orders, cost sheets should provide sufficient information relative to the cost of goods sold. If a considerable portion of production is to be used for stock, a finished goods ledger is advantageous in maintaining adequate and proper control over the inventory. The finished goods ledger, controlled by the finished goods account in the general ledger, is similar in form and use to materials ledger card.
Some production may consist of components manufactured for use in subsequent manufacturing operations. If the unit move directly into these operations, the transfer is simply from one departmental work in process account to the next. However, if the components must be held in inventory, their cost should be debited to materials and credit to work in process

Physical Inventory - Inventory Valuation:

Even with a perpetual inventory system, periodic physical counts are necessary to discover and eliminate description between the actual count and the balances on materials ledger card.
 These descriptions may be due to:
Errors on transferring invoice data to the cards; mistakes in costing requisitions; unrecorded invoices are requisitions; or spoilage, breakage, and theft. In some enterprises, plant operations are suspended periodically during a seasonal low period or near the end of the fiscal ear while a physical inventory is taken. In others, an inventory crew or members of the internal edit department make a count of one or more stock classes every day throughout the year, presumably on a well planned schedule, so that every materials item will be inventoried at least once during the year.
 These descriptions may be due to:
Errors on transferring invoice data to the cards; mistakes in costing requisitions; unrecorded invoices are requisitions; or spoilage, breakage, and theft. In some enterprises, plant operations are suspended periodically during a seasonal low period or near the end of the fiscal ear while a physical inventory is taken. In others, an inventory crew or members of the internal edit department make a count of one or more stock classes every day throughout the year, presumably on a well planned schedule, so that every materials item will be inventoried at least once during the year.
the ledger card balance shows more materials units than the inventory card, and entry is made in the issued section; and the balance section is reduced to equal the verified account. In case the materials ledger card balance is less than the physical count, the quantity differences may be entered in the received section or may be entered in red in the issued section with the balance section being increased to agree with the actual count. In addition to the correction on the materials ledger card, the materials account must be adjusted for the increase or decrease. If the inventory count is less than that shown on the materials ledger card, the following journal entry should be recorded:

Factory Overhead control	xxxx	Dr
	Materials	xxxx     Cr
Inventory adjustment to physical control