 Hello in this presentation we're gonna work a problem related to a job cost system. So remember in a job cost system we will be working with the production of inventory and it's usually going to be production of inventory that is not the same in nature. So when we produce things we often use a process cost system. First a word from our sponsor. Well actually these are just items that we picked from the YouTube shopping affiliate program but that's actually good for you because these aren't things that were just given to us from some large corporation which we don't even use in exchange for us selling them to you. These are things that we actually researched, purchased and used ourselves. Acer 27 inch monitor. I've been using an Acer monitor as my primary monitor for a few years now. This is the first Acer monitor that I have used after having used a series of different brands of monitors in the past. The Acer monitor has been performing well and I'm trusting the Acer brand more and more as I use the monitor. I have a 27 inch monitor which I think is ideal for what I do which is of course the screen recording and the editing. If you would like a commercial free experience consider subscribing to our website at accounting instruction dot com or accounting instruction dot thinkific dot com where we have many different courses. You can purchase one at a time or have a subscription model given you access to all the courses courses which are well organized have other resources like excel files and pdf files to download and no commercials or a job cost system. We would generally use a job cost system when the things that we produce are not the same in nature and also unlike a merchandising company where we're just going to buy stuff and then we sell stuff in the manufacturing company what's happening is that we are creating the stuff so we're actually making the stuff the inventory being the stuff so we're making we're buying the raw material we're processing that raw material then we have the finished good then we sell the finished good so we need to track that process as we go we're assuming that these finished these items are not the same in nature sometimes it's we can think about like a construction company doing jobs if we're attiling kitchens and whatnot we might tile one kitchen that's a lot larger than the other kitchen and therefore we have this problem of how do we allocate things to the jobs such as overhead when the jobs are different sizes so those are the types of things we're going to talk about and we are going to use this information we're going to post journal entries into the blue area here we're going to then we're going to record the journal trees in the blue area then we'll post the journal entries to the general ledger over here so here's the general ledger it has every account that we will be using starting with cash assets in green and then the liabilities and the equity accounts and over here and the income and the expenses we will then once we post things everything to the general ledger then it will automatically populate the trial balance over here so for example this number is coming from that number on the general ledger and that is the case all the way through here so we'll be able to see what is happening as we go through this problem and note that the new thing is that we are also going to have to track this number the work and process not just by the general ledger which will be right here that ties out that's the same number the general ledger is by date but we also want to track it by job so you can compare that similar to the accounts receivable account the accounts receivable account we have 180,000 in it if we look at the activity in the general ledger we can see the activity by date but in that account we also want to track it by who owes us money so we want to list that 180 by clients well the similar kind of notion is going to be by the work and process work and process represents what has what is going on or what is in process at this given point in time in terms of inventory where we have these inventory accounts raw materials that's what we paid for it so that it kind of is what it is the work and process is is what is we're working on and then we're going to transfer that to finished goods so we're going to have to back up this work and process if we go over here that's all the way over here in our job cost system so our job cost system is backing that up by job so we have these three jobs they're not the same you can think of them as like a construction company where we're working on a job or or we are creating something creating making inventory we've got job 14 job 15 job 16 and if we add the totals up the 41 the 42 and the 0 they add up to this 83 as we can see here and that ties out of course to the 83 that we just saw on the general ledger and the trial balance now when we think about us creating inventory we got to get in our heads that the inventory that we're making what we're creating it consists of the raw materials whatever we're using to put into the inventory that's the most obvious piece of the ending product but remember that it also includes direct labor so obviously one for many types of things we make the largest piece of it is oftentimes the labor so how much how much does it cost for the labor that's basically a salary so notice now we're not going to expense the salary for direct labor when the uh employees are working we're going to put that into the cost of the inventory and expense it when we sell the inventory and then factory overhead is anything that we cannot apply to the job so the problem with factory overhead is that we do not know which job you apply it to because either it's too small for us to to take the time to apply it or it's something that's indirect such as the rent on the warehouse or something like that therefore we're going to have to find some way to apply it to the job and we'll talk about how we're going to handle that as we go so just keep in mind whenever we're making something if we're producing something whether it be job costs or process costs we're going to have three factors in production that are included in the inventory that's going to be direct materials direct labor and overhead and we're also going to have basically three inventory accounts to deal with that's going to be raw materials work in process finished goods and then we're obviously going to sell it from that point and then that's when we expense it in the form of cost of goods sold all right so let's first thing i'm going to do here is i'm going to hide a few of these cells because because i want to work with just part of the cells and have everything as close together as possible so i'm going to hide cells g2k so i'm going to put my cursor on g so you see the drop down left click highlight over to k which is that little skinny one let go and then it's uh right click on the selected area and hide that information all right so now we have what we're going to do here we're going to post it into this area and then we're going to have to record it over here on the general ledger all right so we're going to start off on one one where we purchase raw materials on account so i'm going to go through our series of questions as we go through this this is going to be a fairly basic start off there's nothing too unusual on this one we're going to say is cash affected no we didn't buy it with cash we bought it on accounts so we bought it basically with credit so that's going to be the payable account we may want to think about what we received however first in order to decide whether we should debit or credit the payable so what did we buy raw materials so if we look through here we can see raw materials is it is up here it's an asset it's kind of basically part of inventory so we're basically buying the raw materials that we are going to use to make our inventory it's an asset it has a debit balance we got more of it therefore we're going to make it go up by doing the same thing to it as what it is which is another debit so i'm going to debit this account i'm going to right click on it copy it i'm going to put it in c4 right click and paste one two three just the values we're going to debit the raw materials we're going to put the debits on top of course we're going to debit it for 400 000 if we debit something we're also going to have to credit something and that credit will of course be the accounts payable i'm going to represent credits with a negative 400 000 for this worksheet so it's in this case it's in a credit column however it's also represented with a negative number so keep that in mind that's going to go to the accounts payable we can see that the accounts payable has a credit balance does it make sense that we are crediting it well accounts payable has a credit balance we need to make it go up because we owe more money therefore we're going to do the same thing to it as what it is which in this case is another credit so i'm going to copy that i'm going to put that in c5 right click and paste it's one two three okay so now i'm going to post this to the general ledger i'm going to make it a little bit smaller to do that i'm going to put the minimize button bring it down to around 80 and then scroll over here so we can see the accounts payable at the same time so remember the general ledger this is called posting is in the same order meaning we have assets in green and then the liabilities we only have this liability over here being the one liability so if we're going to post raw materials raw materials is here raw materials is the third account on the trial balance raw materials is the third account on the general ledger we are in the debit column so i'm going to be on the debit side of the raw materials in q23 i'm going to post it with formulas so i'm going to say equals and point to that 400 000 that should bring this number up when we hit enter and it should also affect the trial balance so here's the 550 here's the 550 we're out of bounds by the 400 now i'm going to post the accounts payable so here's the accounts payable here it's our first orange account and only orange account because it's a liability therefore it's going to be over here on the general ledger we're going to post it in the credit side because it says credit we're just going to say equals and then point to that 400 000 and enter so that brings our balance to 445 445 puts us back in balance like so all right let's take a look at the next transaction and scroll back over here gonna make it a little bit larger again back up to 100 and we are now on one seven which says direct materials transferred from raw materials to a job so now we're going to transfer that raw material to a job so we're basically saying hey the job is requisitioning this raw material raw materials is now going from the stock house whatever in the corner or the warehouse to particular jobs so the jobs here i'm going to just we're going to allocate it to these three jobs based on this information and therefore what will the journal entry be well we know raw materials is affected it's going from raw materials in this case to the work in process so and why is it going to the work in process because anytime we affect a job the jobs mean work in process that the jobs are work in process so we're going to post it to work in process in the journal entry then we're going to back it up in this format with the job sheets so we know that the raw materials is going down because we are now moving it out of raw materials raw materials has a debit balance we need to make it go down so we're going to do the opposite thing to it which in this case would be a credit so i'm going to copy raw materials we're going to put that on the bottom because credits go in the bottom so here's the date i'm putting it on the bottom right clicking pasting one two three i'm going to put it in the credit column and we've got three numbers here so i'm going to put the i'm going to add those up i'm going to say negative and then add them up i'm going to put brackets around it and put 100 000 plus 170 000 plus 80 000 brackets and enter so it's 350 now why do i put brackets around it like this you can see in the form of the bar that it's up here obviously if i want to add them up and then flip the sign to make it a negative number and if i just put a negative before the 100 000 then it would be a negative 100 plus the 170 and we'd come up with a negative number so what we're going to tell to do in order of operations is add up these three numbers brackets and then take that sum and make it and flip the sign on it basically what we're doing there so we're going to have to do the same thing if we credit something for 350 we're obviously going to have to debit something for 350 so i'm going to say negative of this number i want to debit i want that number but flip the sign and that number will of course go to the working process so we're moving it from raw materials to the stuff we're working on working process has a debit balance we're going to make it go up by doing the same thing to it which is another debit so i'm going to copy that we're going to put that on top in c7 right click and paste one two three all right i'm going to bring it back down to 80 percent down here we're going to scroll back over on this side and we're going to post the working process so here's the working process and here's the working process it's the fourth account so we're going to scroll over here to work and process fourth account on the general ledger this is called posting and we are in u9 so in u9 we're going to select equal and point to the 350 over here that's going to bring the 83 up in the debit direction to 433 which we can also see on the trial balance we're out of balance of course now by the 350 now we're going to post the raw material here it is here we're going to post it here so it's the third account so here's raw materials down here we are in the credit section this time because we're going to bring raw materials down we are in our 24 equals the 350 therefore the the 550 is going to go down to 200 we can see that 200 here we're back in balance here now we've affected the working process now whenever something happens to the working process we want to break that out by job as well so we're also going to have to break this out by job so we'll scroll over here to the job sheet so here's the job sheet over here remember we have our three jobs and the data then said that we broke this out in terms of the three jobs on one seven we're going to we are in the direct materials column and we transferred 100 000 of that 352 job 14 and that's going to bring our total up so notice we have what was in there before in terms of direct materials direct labor overhead plus the 100 brings us to 144 total then we're going to do the same thing for job 15 on one seven we transferred in materials of 170 000 so that's going to bring our balance up our total materials a total direct labor and overhead we're now at 212 and then for job 16 we have on one seven what was transferred in was 80 000 so now if we sum those up they add up to the 433 which ties out to what was on our working process in the general ledger and the trial balance and if i click on this and i hold down control i can click here and here highlight those three cells and see that it also sums up to that 350 so the 350 was the journal entry the 433 is the total of our jobs now that total will also be seen on the working process account here in the general ledger it will also be seen on the trial balance here in working process all right let's move to the next transaction here we're going to bring it back up to 100 scrolling up moving over we are going to skip a line we're now on 112 so now we have direct labor paid so this is going to be direct labor on the job again so now the thing with direct labor well what's the first thing is cash affected is cash affected we're going to say yes in this case and in this case we're going to assume that we're paying cash we're going to simplify the payroll process because we're going to focus in on the working process so we're going to assume we paid cash here so cash is a debit balance we're going to make it go down because we keep we paid cash to the employees therefore we're going to do the opposite thing to it as what it is that's a debit we're going to credit it to make it go down so we're going to copy cash going to put it on the bottom of the date right click and paste it 123 i'm going to do the same thing i'm going to add them up so in order to add them up and flip the sign make it a negative number i'm going to say negative of brackets the 30 000 plus