 In this discussion we will discuss the discussion question of describe the flow of both direct and indirect labor in a job cost system. If we see a discussion question like this or essay question like this, even if we don't really know the difference between the direct labor and indirect labor, we can first start with what is a job cost system? When would we use a job cost system? And then get into labor in terms of a job cost system and then that hopefully jog our memory as to what's the difference between the direct and indirect labor. So in that format we can pick up try to pick up as many points as possible if we're talking about something like an essay question or an exam type essay question. So if we have the job cost system, it's usually one of two systems we use to manufacture inventory. So we're if we're talking about a job cost system, we're typically often talking about a manufacturing company. We could also have a service company that does a job cost system. But most of the time when we think about a job cost system, most of the times we're thinking between the two alternative systems job costs versus process costs for manufacturing companies. And the distinguishing factor between the two would be that a job cost system is going to be used when there's differentiation between the type of inventory that we are making. And therefore we have to track the costs by job. So that's the job cost system now the direct labor within the job 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 is going to be a bit different than like a service company or merchandising company because the direct labor is not going to be applied or just expense at the time it is incurred. We're going to include it if they worked on the inventory to the inventory and that's a little bit different with the journal tree that we think about when we think about recording basically payroll for wages we credit cash or we credit wages payable we debit in this case we're going to debit inventory not debiting the expense at the time it was incurred so the work the labor that's going into that we're consuming at this point in time is helping us generate an asset not helping us generate revenue yet it will help us generate revenue in the future and therefore both direct and indirect will eventually be part of inventory as opposed to being expensed at the time of of uh in currents we will expense it at the end when we sell the inventory in the form of cost of goods sold so then what's the difference between direct and indirect if we're talking about a job cost system we can think about anything that's direct means we can apply it directly to a job so if we're talking about people that worked directly in a job usually the hourly workers that we can think most easily to do that working specifically on a job we can apply their payroll to a specific job and uh and that then will be the supporting documentation for the document where's the document the work and process account and the finished goods account in other words uh we're going to debit work and process as the work is done instead of wages expense increasing work and process an inventory account we're going to support that debit on the trial balance with uh job sheets because we know which jobs were worked on if we sum up all the job cost sheets they will then add up to or at least the open ones we sum up all the open job cost sheets they'll add up to what's on the trial balance in work and process indirect labor on the other hand is that type of labor which we don't know exactly which job it should be applied to and therefore we have to put it to overhead and we're still talking about stuff that's going to go into inventory we know it needs to be an inventory somewhere we just don't don't know which inventory we don't know which job was worked on and that could be something anything that we say is in the factory like a supervisor salary the maintenance salary any kind of salary where they're basically not working on one in particular job but possibly like a supervisor looking at all the jobs and we don't know exactly which job they were working on so we're just going to take their salary and we're going to put it into overhead and then we're going to apply it out using some kind of allocation factor so the difference between direct and indirect is that the indirect we don't we can't apply it directly to the work and process have to put it into overhead we will apply it to work and process once that bucket of stuff including indirect labor is then allocated using some kind of estimate estimating method to do so so eventually after that estimated has happened we will apply the work and process or the indirect labor to to work and process along with the other overhead so eventually it will go to work and process and then once the jobs are done then my job is done those jobs those jobs will move to the finished goods and with those jobs will go the cost of the labor which is now moving still in inventory but to the finished goods inventory rather than the work and process inventory and then at some point in time of course we will sell the inventory and we will move it from the finished goods to the income statement in the form of cost of goods sold so finally we'll make the sale and we will record that cost of goods sold