 Which kind of makes sense for us because it it's always a debit balance You would think factory overhead being kind of like an inventory account would always be a debit balance But it could have been over applied and over applied would look funny to us because it would it would mean that this credit here Had been higher than the debits and that's possible It would just flip the account from a debit balance account to a credit balance account So if the credits were winning we would have a credit balance in the factory overhead And that's okay because we don't it's just an estimate. It could be over applied. It could be under applied We don't know we did we do our best to make an estimate as close as possible And it's possible to be under or over whatever the case may be We need to do something with this 380. We need to make it go down in this case. It's a debit We're gonna make it go down doing the opposite thing to it, which is a credit Now the other side we're gonna put that to is like where are we gonna go with that the other side because We don't know which job to put it to that's the whole process That's the whole problem of us putting into factory overhead in the first place And we're gonna use as we can see here the cost of goods sold number and our rationale for that is basically going to be that Eventually it's gonna go to cost of goods sold because if we go through this process We would hope it's gonna go to factory overhead. It would if everything was done perfectly It would have then go into work and process and then we're gonna sell that and then it's gonna go into finished goods and then we're gonna sell this in this inventory and Expense it in the form of cost of goods sold So this 380 we don't know where it really should be should it still be in working process? Should it still be in finished goods or should it be in cost of goods sold? It could be either one of those if we had done things perfectly if we knew exactly where to post everything out Why then would we choose cost of goods sold if it's in material if it's small? Amount in relation to decision-making cost of goods sold is the easiest place to go because cost of goods sold will then roll out to net income and Then net income will roll out or roll into retained earnings in other words It'll go away after this first time period So that's the easiest thing to do if we want to make this zero and not have to worry about this number Then we can put it to a income statement account The most logical one being cost of goods sold because it's related to inventory Which will then roll out to retained earnings at the end of the time period and and we won't have to worry about it We'll start all over so again the question here often is well What happens to net income you're distorting net income? Possibly by this 380 because maybe it shouldn't be in cost to get sold Maybe it still should be in working process or finished goods and that could be the case But usually and hopefully it's in material to decision-making and it won't affect people's decision-making process and therefore It's okay It's justifiable to do the easy thing and write it off to cost of goods sold given the fact that it is an estimate Now if it is material then we would want to go back through if it's going to affect decision-making if this is a big number in Relation to the other numbers that would affect what we think about the financial statements Then we'd want to go through and say okay We should go back and try to figure out which job it should be applied to is it still in Work and process finished goods or have those jobs been sold and try to allocate in some fashion to to the jobs and properly Allocated out as best we can again There's no perfect way because it's an estimate this bucket is just an estimated number So we can do a try to do a reallocation and figure out where it should go if we think the number would be material If not, we'll do the easy thing here and just record it to cost of goods sold. So that's what we do here Now note also that if this number Happened to be a credit then we would just do the opposite of this journal entry Meaning we would if this was a credit here. We'd have to do the opposite thing to make it go down We would debit it and then we would credit cost of goods sold and That might seem a little funny because you might say why would we ever credit cost of goods sold and Because it's an expense account It should only go up in the debit direction and again, it's not about cost of goods sold It's really about just getting this number to zero. We already know this number is wrong It's only wrong because it's an estimate if it's close enough Then that estimate is close enough and all we're trying to do is make this zero and we're kind of abandoning the normal rule to cost of goods sold which is that it typically only goes up in the debit direction in this case We'll make it go down just to to clear out this account Here and because it's low. It's it says a low amount So that's kind of our exception to the rule that I have said a few times that expenses typically only go up So there's a few exceptions to the rule This would be kind of an exception to that rule if this amount happened to be a credit at the end of the year Meaning we had over applied Factory overhead we would do the same journal entry But of course the reverse of it to make factory overhead go down We would have to debit it and then the other side would have to go to cost of goods sold We're not going to change the account It's going to go to and it would look funny because we would be crediting cost of goods sold But again, that's okay because it's just an estimate okay, so if we do that then our journal entry is going to be a To a debit to cost to get sold going from zero up by 380 to 380 and that's going to be this posting We're posting to the general ledger then we're going to post the factory overhead It's going to go from 380 down in the credit direction in this case to zero So if we look at our accounts over here, we've got the factory overhead at zero That's the point and then we have the 380 here with brought net income down now in our problem here We haven't recorded the sales for the month yet So the sales are going to be recorded In the next process we wanted to keep the factory overhead Journal entries kind of in the same place so you can see them side-by-side of what happens So remember that this really happens at the end of the time period generally at the end of the month We would clear out the factory overhead and that's going to be after Typically, hopefully we're gonna have sales happening throughout the month What we're going to record now is is the next process that's within the flow of inventory Which is to move the working process in the next presentations to the finished goods and Then some of those jobs will be sold recording sales and the cost of goods related to those jobs