 Hello in this lecture we will define job order costing system. According to fundamental accounting principles Wild 22nd edition the definition of job order costing system is cost accounting system to determine the cost of producing each job or job lot. Support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems PDF files and more like QuickBooks backup files when applicable. So once again click the link below for a free month membership to our website and all the content on it. When we're thinking about a job order costing system we are thinking generally of a manufacturing company a company that manufactures inventory meaning we're starting with something like raw materials that will then be converted to inventory at the end of the process. The two systems usually used in terms of processing inventory would be the job cost system and a process cost system. We here are considering the job cost system a system in which the information to track inventory through the production process is done by job. So that would mean that in a trial balance within the inventory accounts we could have multiple inventory accounts including raw materials work in process and finished goods and then once those have been completed once the inventory is completed and then sold we would have a similar process as we do for a merchandising company in that the inventory would then be reduced when sold and we would record the cost of goods sold the expense related to the sale. The job cost system needs to find a way to track the inventory from raw materials to work in process to finished goods and it does so by job. By doing so by job we then have a way to allocate the costs to specific jobs in specific units of inventory which we can then determine to sell. Therefore the job cost system is going to have job sheets which will back up the inventory accounts including the raw materials work in process and finished goods well at least the work in process and the finished goods that is. So what we're going to have here is a sheet that will include the components of inventory this will be the general ledger over here we're backing up the raw materials the finished goods the work in process the factory overhead showing the activity within those accounts for example the 170 here in the raw materials matches the 170 here in raw materials in the trial balance the 500 000 finished goods here in the general ledger matches the 500 000 in the trial balance the work in process 260 in the general ledger matches the 260 000 on the trial balance and of course the factory overhead has the credit of 3000 represented here we also need to break those out by job so the job sheet is basically backing up what is in mainly the work in process account because the work in process account is including all jobs that are in process and we need to differentiate those jobs when we actually sell the jobs so within work in process we're going to have a direct materials direct labor and overhead that's going to be these three items that are being represented by these three numbers however we need to break those out by job so for example if we have these three jobs job 14 16 and 15 and we're saying that two of those have been closed what that means is that they have been closed out to finished goods no longer in work in process we have this one job here that is remaining open so this 260 is the open job remaining in work in process and that number is backing up what is in work in process the other two being part of the finished goods here being this 186 and the 314