 In this presentation, we will record the journal entry to record the sale of jobs, the related reduction in finished goods inventory and cost of goods sold. What we've done so far throughout the period is we're recording the costs related to the inventory into the work and process account and then we transfer them to the finished goods once they're completed. In other words, we're recording the information into the work and process account as they happen, as the costs happen, the ones that we can assign directly to work and process, that including the direct materials and direct labor, then we include in work and process. We can include them directly only if we can assign them to particular jobs. So direct materials and direct labor are items that we can assign to jobs such as job 15, job 16, job 17, job 18. The stuff that we could not assign directly to the jobs we had to put into factory overhead, then use an allocation base to assign it to the job. So each job then does have factory overhead, but we had to use an estimate in order to apply out this factory overhead. So now we've got to consider are these jobs open? Are they closed or have they been sold? There's really only three things that can happen to these job costs sheets, they could either be a job that we're still working on, in which case I'm going to call it open, it's still being worked on, or it's been closed or finished, whatever we want to call it, I'm going to say closed, then it's going to be a job that should be included not in work and process, but in finished goods. And then once we sell it, I'm going to say it's going to be shipped at that point. So that's when it's going to be shipped or done or completed. It's not only done in terms of the finished goods is done, but it's done in terms of it's gone, we shipped it, it's left and therefore should be recorded in cost of good sold. Now notice what we're not focusing in here, I'm not focusing on the sale, because the sale is going to be recorded at that final point when we ship it. But that sales price doesn't have anything to do directly with these numbers on the cost sheets that we're directing, but the cost of goods sold does. So we'll talk more about that when we record the journal entry. Right now just note that this current job sheet is supporting work and process finished goods before we record this shipment, meaning it's it still has these two in finished goods. So if we if we look at the supporting documentation for the job cost sheets, we're going to say that these three add up to if I add up this 3820 the two nine the two seven nine zero and the two one two six, we're going to say that three eight two zero plus the two seven nine zero plus the two one two six adds up to the eight seven three six, that's still in finished goods inventory. Our goal now is going to be to ship these two out and move them from finished goods, they got to go out of finished goods because we don't have them anymore, and they're going to move to cost of goods sold that journal entry then is going to be for these two jobs, 3820 plus the two seven nine zero or six hundred and six thousand six hundred and 10 that we're going to reduce the finished goods by leaving just the one finished good job two thousand one twenty six and moving this six thousand six ten to an income statement account a temporary account one that will close out at the end of the time period to retained earnings of cost of goods sold the two jobs that are still open that are still in work and process here are these green jobs that's going to be the two thousand twenty four and the two thousand three ninety so the two thousand three ninety and the two two four add up to the four thousand four hundred and fourteen which are still in work and process so these job costs sheets can then support the work and process and the finished goods they will in essence support the cost of goods sold to a degree but remember that these are temporary accounts that will close out to retained earnings so as we go through time as we go through years we're going to have a whole lot of closed jobs that have been closed and shipped hopefully because we're going to be doing this for a long period of time the cost of goods sold number is going to always close out to retained earnings so we can't really tie it out in the same way the same fashion as we can tie out to the finished goods and the work and process accounts so just keep that in mind note that we are looking at it with kind of a simplified job cost sheets here the job cost sheet that we've looked at as an example is more detailed here we had the direct materials direct labor and overhead the three components of which will always be in the job cost sheet this showing more information as we go including the requisition forms and the date of the direct material requisitions as well as the time tickets and the date of the time tickets being allocated to this particular job so this is just an example of one job that could be more detailed then we're kind of summing this up a direct materials direct labor and overhead so just keep that in mind as we go the job cost sheets might look different they could be very detailed we could have a simplified format of them different companies will have different job cost sheets it'll depend on what type of of work we're doing but they will all typically have if we're making stuff direct materials labor and overhead and if we're not making stuff then we're basically typically going to have the labor we're probably charging for hours and we could still have the overhead that we're going to allocate out okay so then if we then take a look at the journal entry it's a little bit more tricky for the sales journal entry because what we're doing now is saying these jobs have been shipped so we know that the finished goods inventory needs to go down because we no longer have these items and we have to tie out the job cost sheet here and the other side is a little bit more tricky we might say well what should the other side be and you're you might be tempted to say well it should be sales because that's what that's what happened we made a sale but and we have to go back to that merchandising journal entry to figure this out and when you think of a merchandising company or any company that sells merchandise and it's a perpetual system there's two things we can think of them as two journal entries they happen at the same time we could record them as one journal entry but it's useful to think of them as two journal entries that happen at the same time happen simultaneously in a in a perpetual system when we make a sale one is that we regret it sales increasing sales and we debit if it's an invoice accounts receivable or if we get the cash at that point cash so that's going to be one component now based on what we have here we don't know the number yet of that we only know what the journal entry is going to be because all we're tracking here is the cost what we're tracking here is the other side which is to decrease the finish goods inventory and record the related expense of cost of goods sold that's what we know so far we know that this is going to be cost of goods sold the cost of goods sold is comprised of these two jobs that have been completed this job at 3820 and this job at 2790 giving us the 6610 so that's what we know so far we don't know the sales number we know it's probably going to be more than that hopefully we don't know exactly what it is and then we're going to credit the finished goods so the finished goods is it's going to go down so if we think about the sales number then a book problem will often give it to us in practice we would have to determine of course what our sales price could be if it's a construction company we may have set a bid at the beginning of the process and now complete the bid or we might have set the price at the beginning of the process and we may use the job cost sheets in order to determine what the price will be for example if we were doing like a construction company or any type of job cost system some kind of transparent system the most transparent way to do this would be to set up an invoice saying hey look this is what we actually think that job 15 the one we worked on with you was for direct materials here's the direct labor here's the overhead which is us allocating all those other costs that are like in the bucket that allocates out that adds up to 3820 and then tell our customer what we mark up for what's our revenue proportion to this if we say that there's a 30 markup for us for our revenue we would say that it's it's for this job 3820 times 30.3 that's how much we're going to earn here plus the cost 3820 or we're going to charge 4966 or we can do that with one calculation that's going to be the 3820 times 100 100.3 30 percent markup so that's the 4966 so that's one way we could make the invoice which is a nice way to do it transparent way to do it oftentimes but it's not the only way we could make the invoice the sales price is not tied directly to these sheets unless it's whatever we plan to do with it so if we have these two jobs then our journal entry for these two jobs if we have a 30 percent markup that's what we're going to assume here is 3820 plus 2790 that's the cost of those two jobs right here and we're going to mark that up 30 percent so I'm going to say that times 1.3 so we're going to sell them for 8593 then that's how much we're going to invoice for so then we're going to say that the receivables is going to be that 8593 and we're going to credit the sales for 8593 again if you look at a merchandising company you probably think of this journal entry first because we were concentrating on the sales all the times with the sales price and then we'll think about the cost of goods sold here like book problems may not even ask you for this journal entry even though it's the thing we're most focused on in practice because we're focused on you know earning revenue getting money but this whole problem has been focusing in on this journal entry this component of it so just be aware that when we get to this last step that we have to figure out the the sales price and it's not tied directly here a book problem is going to have to give it to us in practice we will of course have a system of determining what the invoicing price will be and it may be based on these job cost systems but not necessarily directly applied to them so now we will record the journal entry to our general journal so here's the accounts receivable it started at 180 we're going to bring it up in the debit direction by 8593 to 188 593 that then found on our trial balance then we have these sales here so the sales was at zero it's going to go up in the credit direction by 8593 to 8593 that then being also found on the trial balance and then we've got the cost of goods sold it started at 380 that just being the closing out of the factory overhead to make it zero at the end of the time period remember and and that happened in a prior presentation and then we're going to say that this 6,610 is going to bring the balance up to 6,990 so there's our 6,990 here it is on the trial balance and then we've got the finished goods so the finished goods started at 8,736 it's going to go down by 6,610 to 2,126 that 2,126 also being found on our trial balance so what's happened here is just basically our normal type of journal entry once we get these numbers just our normal journal entry when we make a sale as it would be if it was a merchandising company recording an increase in sales which increased net income and the other side being the accounts receivable people owing us money we accept we expect to get a check in the mail hopefully and then we recorded the cost of that of that inventory bringing the net income down so of course the net sale is this number minus this number that's what we really kind of net income is affected by or gross profit net income and gross profit by this journal entry and then we recorded the reduction in the finished goods just as we would in a merchandising company reducing the inventory account for those inventory items that were sold so if we look at our worksheet here and related to our trial balance we can still tie this information out to what we have now so we've got our closed jobs is just going to be this 2,126 that's the only one that's still closed but not shipped and therefore still in the finished goods then we have the amount that is open that's going to be those two green ones i can't decide where to put the calculator it's going to be these two green ones so it's going to be this 2390 plus the 2024 that's going to be the 4,414 that being found here so there's the 4,414 now again the cost of goods sold we can't normally track all the way through but you know if we if we adjust the time periods and go through the the cost sheets in this case we could say that it's the 3820 plus the 2790 it's going to be that 6,610 and zero doesn't tie out to the 6,610 zero here why because it's off by the under overapplied overhead that we had that's going to be off by this 380 the under overapplied overhead so again that the cost of goods sold isn't going to be able to tie out to our job sheet necessarily not just because of that under or overapplied overhead but also because it's a temporary account and we're going to have a whole lot of of shipped jobs over time as months go by we of course will have a lot of ship jobs so we could try to add up the ship jobs that were completed during a certain time period but typically what we what we do here for sure is we want to support the open jobs and with the work and process account and we want to support the finished jobs with the job accounts and so these two accounts need to be supported by job cost sheets as we sell them of course we will then use these job cost sheets to determine what the cost of goods sold will be