 In this presentation, we're going to enter journal entries related to overhead into our job cost system. The information will be on the left. We're going to enter that into our general journal. We'll then post the journal entries in the general journal to the general ledger. 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 accountinginstruction.com or accounting instruction.thinkific.com where we have many different courses. You can purchase one at a time or have a subscription model, giving 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. The general ledger then being used to create the trial balance. The trial balance is in order, assets and then liabilities, equity, income, and then expense accounts were currently in balance to debits minus the credits equal in zero, nothing currently in net income. What we're going to do now is record items related to the factory overhead. And that's going to be items that anything that is in the factory that we cannot apply to a specific job. So if we think about these types of things, we're saying, well, what can we apply to a job? We know that anyone that works directly on a particular job, we should be able to apply that out direct labor, any material that is large that we can apply to a particular job if we're talking about like guitars, the wood in the in the guitars or whatnot. If we're talking about construction, any large items, if we're tiling something that tiles of course would be in there. Those would be the things that we can specifically tie out. Now something we cannot specifically tie out and we've already talked about a couple of them one being indirect materials. So if we're talking about like small things like grout or maybe in a job, we might not want to track those things. And therefore we put those into into overhead because we couldn't assign it to a job or people that work in in the factory that are supervisors or supervising multiple jobs, we don't know how much time they spent on each job, perhaps. And therefore, we're putting it into overhead and will apply out their costs to the jobs in some other format. Anything else on the factory for if we're producing something in a factory, then anything else is going to be part of that if we're in construction, maybe the driving or something like that if we're not applying it to a specific job could be something that would be anything that's going to be something that is a cost, we know it's part of the job, it should be included as part of the cost of the job. But we don't know exactly which job to put it to, then goes into overhead. So if we have a factory, then, and oftentimes book problems will have, you know, a very clear distinction between what's going to be in the factory and what's in the administrative office. So if we have the factory, if there's depreciation on equipment, and it's factory equipment, well, then that depreciation should be going into overhead, as opposed to if it's equipment that's going to be in the office, then that it's going to be an expense depreciation expense. If it's rent on something, you know, in the factory for renting the warehouse or a factory, where we put the inventory together, then that's going to go into work and process utilities, insurance. Now notice these are the types of things that when we see them, again, we see these and we probably just automatically, especially something like utilities, we probably see that and say, what's the journal entry? Well, we credit cash, we debit utilities expense, you know, that's just the journal entry for utilities, we probably just memorize that. But we're going to have to unlearn that if that's what we've memorized because we're applying that out because of the matching principle. Normally, if we're not a construction company, when we pay the utility bill, it's because we used the utilities to help us generate revenue in that time period. And in this case, if it's on the factory where we make stuff, then we didn't use that utility, we didn't pay the utility bill to help us make money yet, can help us make money in the future, or earn revenue in the future. What it's done so far is it's helped us to make inventory. So we've got these are really fairly simple journal entries, but we probably have to kind of unlearn it's just a habit we have of thinking that these journal entries are just recorded one way as an expense, because just of the type of account they are, really, they're an expense because they used to represent costs that were used in a period of time in order to help generate revenue. Now, they're there to help us generate inventory. So if we go through these, for example, we're going to say that the depreciation on the factory equipment, so it's factory equipment, usually, any time a depreciation journal entry is there, with always depreciation expense, debit, credit, accumulated depreciation. But this time, we still have accumulated depreciation, meaning this factory equipment is still going down, it's going down in value, we're estimating how it goes down in value. But the debit's not going to be down here on the income statement, because we haven't used that equipment in order to help make money or revenue yet. What we've done is we've helped it to make an asset, so it's going to go up here, it's going to be part of our assets, not in working process, but into factory overhead. It's going to eventually go to working process, but we don't know which job to put it to, so we can't go there either. So we're going to credit the accumulated depreciation here in J13, I'm going to right click and copy, going to put that on the bottom in B17, right click and paste 123. This is the same as whenever we record depreciation, we credit accumulated depreciation, credit negative 2500, we're still going to debit something, I'm going to do that with a negative of this number formula. There's our debit, this is usually depreciation expense, but and that's where the weird thing is not depreciation expense here, it's going to go into not working process, because we don't know which job to apply it to, you can't put it there, it's going to go into the bucket factory overhead, because we eventually want to put it into working process, and we eventually want to put it into finished goods inventory, but we can't do it yet. So it's going to go into work at factory overhead. So I'm going to right click and copy, we'll put that on top in B16, right click and paste 123. So here's our journal, again, it's a little bit tricky, we have to unlearn a bit to do that. So here's factory overhead, here's factory overhead here, we're going to post it, it's like the third to last green or asset accounts going to be in the same order on the general ledger. So we'll go to the right, factory overhead is down here, I believe, I've seen it a few times. So here's s 27 s 27, we're going to say equals, I'm going to scroll to the right and find the last journal entry we had, there it is factory overhead, and there's that 2500 and enter. So that's going to bring the balance. So here it is, it's in equals C16. It's going from 1,750 up by 2,502 to 4,250. That then is found on the trial balance. So that's being used to create the trial balance. At least this one is down here. So there it is on the trial balance, we're out of bounds by that 2,500 until we record the other side. So here's the other side. And that's going to be accumulated depreciation last asset accounts, a contra asset account. So we're going to go meaning it's an asset with a credit balance. So we're going to go over here to x 14 accumulated depreciation credit side x 14 equals, I'm going to scroll to the left, scroll down, pick up this 2,500 and enter. So there we have it. It was at 153,000 credit. It's going up in the credit direction 2,500 to 155,500 that then being used to create the trial balance. So it acts the same on the on this side, of course, bringing down the book value. Here's the equipment. This account went up, bringing down the book value to 354,500. And then of course, on the on the other side, however, we created an asset of inventory. So all this is inventory, we're all moving around inventory. And it's going to then hopefully get to finish goods and we'll sell it finally. And that's when we'll expense it. We'll never see depreciation expense on this factory equipment. What we will see is cost to goods sold, which includes the use of the factory represented by the depreciation that was recorded into this item here in the factory overhead. Okay, so then all this other stuff, rent paid utilities and insurance. These are usually things we think of as expenses insurance, we might have think of the prepaid insurance, but we're going to, you know, write put into put all this into the jobs at this point. So we're going to say so maybe if this was monthly insurance, we're going to put it into the job. So we could do this with three different journal entries, which would credit cash and debit factory overhead, and then credit cash to 15 credit factory overhead, but we can also just combine them into one journal entry. And so that's what we'll do here and in practice, of course, we would write probably three checks. But in terms of a journal entry, cash is going to go down by these three items. And we're going to debit factory overhead for that amount. Now, when you see this in a book problem, they're often going to kind of make up accounts here. Well, let's look at this account and see why that might be the case. So what we're going to do is it is we're going to pay cash for this 1,600 to 250 and the 1,000. So cash is going to go down. I'm in C6, right click and copy. We're going to go down, skip a line, skip another line. So we're on the bottom and B20, right click and paste 123. Now I'm going to add these accounts up. I'm going to make it a credit. So it's going to look a little funny, but I'm going to say negative of 1,600 minus 250 minus 1000. And that'll give us the credit of 2008, 50. If you want to do it another way, you could say sometimes equals negative and then brackets, because I want to take whatever we have here and flip the sign 1,600 plus 250 plus 1000 like this. And then, and then so it's going to add these up and I need the brackets to flip the sign. If I don't have the brackets, then it'll be wrong. Add what I want. So and then enter. So there we have it. And then we're going to say the debit is going to be negative of that number. And so the debit then instead of going to rent expense, utilities expense and insurance expense or prepaid insurance expense, so it's going to go into factory overhead. It's going to be part of the inventory. It's not going into work and process. Why? Because we don't know which job to put it to. We're going to eventually apply the factory overhead to work and process using some kind of estimation method. So it's going to go into overhead now into this bucket. So I'm going to right click on overhead, put that in B 19 right click and paste 123. So there's our journal entry. Now note, from this journal entry, you can't really tell what happened here because factory overhead could be anything that is is that's part of the jobs that we couldn't part of inventory that we couldn't apply to a job. And the cash could, you know, it doesn't tell us what we paid the cash for. So in practice, oftentimes, we'll have a description here, which will tell us, you know, we paid the cash for this. But a lot of times book problems are going to try to tell us this just with the journal entry. So when you see book problems, you'll see journal entries that look kind of funny, not just because they're they're not debiting what we would normally think of debiting if it wasn't a manufacturing company, which would be expenses other than the factory overhead, but also because they try to make like payable accounts. So for example, if I made this utilities payable, if I debited factory overhead and credited utilities payable, then without without having a description, you can say, well, we credited utilities payable a liability. So it must have been that we have a utility bill that we're applying to the overhead. So again, in practice, we probably would never do that because we usually just pay the utility bill and apply it out. But in book problems, you might see start to see these payable accounts and start to say, well, manufacturing companies must have more payable accounts than other companies. And no, the reason that the books probably doing that is because they're trying to be able to show just with the journal entry that what's happening and it's easier to see what's happening if you have something like wages payable utilities payable, rather than just crediting cash. So but again, in practice, you would probably credit cash. So just be aware of that when you see that in the book problem, it's there to help. Sometimes it's not helpful because it kind of confuses things more to have the payables that you wouldn't normally see. So that's that. So we have this here, these these items being credited, cash being paid, kind of like the monthly expenses, instead of them going to expenses, them going into factory overhead, let's post this out. Here's the debit, it's going to go into factory overhead. So that's like the third to last account on the trial balance third to last account on the general ledger. And we've seen it a few times now it's going to be down here somewhere. So there it is in s 28 s 28. So within s 28, we're going to say equals and point to that two thousand five hundred two thousand eight hundred and fifty and enter. So that brings the balance was at four thousand two fifty up by two thousand eight hundred and fifty two seven thousand one hundred. That then of course can be found on the trial balance were out of bounds by the two thousand eight fifty until we record the other side. So here's the other side cash. And so cash is our first account first and favorite. There it is. And we're going to be on the credit side. I'm going to make it go down. So we're in P nine that equals this two thousand eight fifty credit to cash bringing the balance down from four eighteen thousand by two thousand eight fifty to four fifteen one fifty that then the balance on the trial balance were back in balance. No effect in net income. And again, this may seem funny because we paid the utility bill, the rent and insurance. How is there no effect on income because we didn't use those to help us generate revenue. We use them to create inventory. When will they affect income? When we expense them in the form of cost of good sold? Will we ever see a utilities expense related to an expense that we paid for utilities on the factory? No, it's all it's going to be part of the inventory. We're never going to see an expense related to utilities expense that we paid for the factory because it's going to be included in the cost of goods sold. Note also that we didn't do anything to the jobs over here. If I go to the right, we didn't have to do anything to the jobs. Why? Because we didn't know which job to put it to. We didn't. That's the problem. So we couldn't put it to work in process because we didn't know which job it goes to. So eventually we will have to record it out to the jobs. We'll have to record some type of factory overhead, use some type of allocation base to do so.