Under-absorption of overhead will be shown on which side of the SPL?

Under-absorption of overhead will be shown on which side of the SPL?

• A. Debit (Dr)
• B. Credit (Cr)
• C. Neither
• D. Both

Answer: (A)

Under-absorption occurs when the overheads actually incurred are greater than those absorbed into production. This difference represents an additional cost that must be charged to the profit and loss account. In the P&L, expenses increase the debit side, so the under-absorption is shown as a debit entry. In effect, the P&L bears the extra overhead cost that wasn’t absorbed, increasing expenses for the period. (If overheads were over-absorbed, the adjustment would appear on the credit side as a reduction of expenses.)

Under-absorption occurs when the overheads actually incurred are greater than those absorbed into production. This difference represents an additional cost that must be charged to the profit and loss account. In the P&L, expenses increase the debit side, so the under-absorption is shown as a debit entry. In effect, the P&L bears the extra overhead cost that wasn’t absorbed, increasing expenses for the period. (If overheads were over-absorbed, the adjustment would appear on the credit side as a reduction of expenses.)