 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. 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. 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 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 goods 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 3,820, the 2,790 and the 2126, we're going to say that the 3,820 plus the 2,790 plus the 2126 adds up to the 8736. 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, 3,820 plus the 2,790 or 6,610 that we're going to reduce the finished goods by leaving just the one finished good job 2,126 and moving this 6,610 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 2,024 and the 2,390, so the 2,390 and the 2,024 add up to the 4,414 which are still in work and process. These job cost 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. 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. Just keep that in mind. Note that we are looking at a simplified job cost sheet here. The job cost sheet that we've looked at as an example is more detailed here. We have the direct materials, direct labor and overhead, the 3 components 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. This is just an example of one job that could be more detailed than we're kind of summing this up, direct materials, direct labor and overhead. 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 work we're doing but they will all typically have, if we're making stuff, direct materials, labor and overhead. 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. 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. 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. The other side is a little bit more tricky. We might say, well, what should the other side be? You might be tempted to say, well, it should be sales because that's what happened. We made a sale. We have to go back to that merchandising journal entry to figure this out. 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 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 perpetual system when we make a sale. One is that we recredit sales, increasing sales, and we debit if it's an invoice, a counts receivable, or if we get the cash at that point, cash. That's going to be one component. 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 finished 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. 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, and we don't know exactly what it is. Then we're going to credit the finished goods. The finished goods is going to go down. 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. We may use the job cost sheets in order to determine what the price will be. For example, if we were doing 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 the 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 in the bucket that allocates out. That adds up to $3,820, 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 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 $4,966, or we can do that with one calculation. That's going to be the $3820 times 100, 100% .3, 30% markup. So that's the $4,966. 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% 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%, so I'm going to say that times 1.3. So we're going to sell them for $8,593 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 $8,593, and we're going to credit the sales for $8,593. Again, if you look at a merchandising company, you probably think of this journal entry first, because we're concentrating on the sales all the time, with the sales price. And then we'll think about the cost of goods sold. Here, 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 earning revenue, getting money. But this whole problem has been focusing 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 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 $8,593 to $188,593, that then found on our trial balance. Then we have the sales here. So the sales was at zero. It's going to go up in the credit direction by $8,593 to $8,593. 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 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 expect to get a check in the mail, hopefully. And then we recorded the cost of that inventory, bringing the net income down. So of course, the net sale is this number minus this number. That's what we've 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 completed worksheet here and related to our trial balance, we could still tie this this information out to what we have now. So we've got our our closed jobs is just going to be this 2126. 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 this 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 if we adjust the time periods and go through the cost sheets, in this case, we could say that it's the 3820 plus the 2790. It's going to be that 6610 and 0. Doesn't tie out to the 6610 and 0 here. Why? Because it's off by the under over applied overhead that we had. That's going to be off by this 380, the under over applied overhead. So again, 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 over applied overhead, but also because it's a temporary account. And we're going to have a whole lot 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 do here for sure is we want to support the open jobs 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.