 In this presentation, we will take a look at the cost flow through the general ledger for a job cost system. If we can understand the general ledger and be able to see what is happening as the costs go through the general ledger, we really get a good idea of what a job cost system is doing and a good idea of general ledgers t-accounts and how the double entry accounting system works. 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. 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Not looking at the journal entry but just looking at the GL and try to think about okay if we see the GL, the posted transactions, the posted journal entries, what is it that actually happened to make these transactions and see the flows through the GL account and our goal is to be able to look at really the last slide which has all of our transactions in the GL account and be able to see how they're all related to each other as the GL account is basically put together. So we're going to construct the GL account as we go and then look at that last slide and if you can look at that last slide and say okay I see how all this stuff is basically tying together without really looking at the at the journal entries then you're getting a good idea of the flows that are happening through a job cost system. So for example this first one we see that we have the raw materials here and we see the work in process. These are the two things that are happening from this GL account at this time and we can see that the raw materials is going from zero I'm sorry the work in process is going to go from zero up by 2230 to 2230 and the raw materials inventory is going down was at 150,000 going down by 2232, 147, 770. So what happened here is that of course we took raw materials from we can imagine the warehouse and we're putting it into the work in process account. So we can imagine a requisition form happening here in order for us to say hey warehouse we need uh we need material to be taken out and put into the factory where we're going to make stuff if it's guitars again we're going to take stuff out of the wood out of the uh out of the warehouse and start to work on it in the work in process as we do so we put this into work in process and remember every time we do that we're also supporting this number by job we have to apply it to jobs. So then the next thing that we're going to have happen is say this is our next transaction the next new thing is this item and this item. So factory overhead is going up and the raw materials is going down from 147, 770 down by 552, 147, 220. So what happened here is raw materials going down again but it didn't go to the work in process this time it instead went to factory overhead. Why? Because we didn't know which job to put it to this might be small stuff it might be glue on the guitar might be small components on the guitar where the the factory just went into the to the uh to the warehouse and said hey I just need glue I don't I don't know which job we're going to work on we're going to put it in the middle of the factory and use it for like all the jobs well then then we're going to have to just put it in the factory overhead because we don't know which job we'll assign it out later so this is indirect materials here. So then the next thing that happens is work in process here and wages payable okay so wages payable and work in process wages payables a liability account it went from zero up in the credit direction to 4200 the other side going to work in process so this one's a little bit more confusing for most people because you can think of it it's kind of like we process payroll what happened here and instead of crediting cash we haven't paid it yet so we credited wages payable and instead of debiting wages expense as you would think we debited work in process now that's confusing for a couple different reasons because obviously we're not dealing with withholdings or payroll taxes and that stuff and one and two because most people you know think of a journal entry that should be the debit should be going to wages expense and that's the thing we got to kind of unlearn this lot of these things that we think of as just expenses because of what they are are really expenses because of the period that they are being incurred in in other words these wages expenses are not being incurred in this time period to generate revenue but to generate an asset inventory so instead of debiting wages expense we're putting it into this work in process as we do so the work in process is going up from 2002 30 from the direct materials up by the 4200 for the wages to 6430 and we're also going to have to post that to the job it's direct therefore we know exactly which jobs were worked on by this 4200 and we'll be posting to the job sheets as well the job sheets then if we add them all up should add up to the 6430 next thing that happens wages again we're crediting it but this time not debiting work in process but factory overhead same thing we're kind of like thinking that like we're processing payroll instead of crediting cash we're crediting wages payable because we haven't paid it yet liability account bringing the liability up from 4200 by 1200 to 5400 the debit not going to wages expense not going to work in process as it did before but going to factory overhead because it is going to a job I mean it is going to inventory but we don't know which job so it's not expense because it's not helping us generate revenue now it's part of inventory but it's not part of work in process because I don't know which jobs to apply it to instead it's going to go into the bucket of factory overhead it's going to be indirect labor stuff like on you know the supervisor salary the maintenance and the warehouse anything really wages related that we couldn't apply to a job next thing that happens is we're going to say that we credited accumulated depreciation and debited factory overhead why would that happen well accumulated depreciation is related to equipment we know that journal entry always has a credit to accumulated depreciation it being a counter asset account it's going in a credit direction 153 000 credit up in a credit direction by 2500 to 155 500 the debit then is not going to depreciation expense as we would normally expect but is going into factory overhead why because it's depreciation on factory equipment and it's we're not using it's not helping us to generate revenue and we didn't put it so it's got to go into inventory we didn't put it into work in process because we don't know which job to put it to and therefore we had to put it into this bucket again it's working the factory overhead next thing that happened is that factory overhead increased and we credited cash now note that this journal entry doesn't tell us a lot of detail we don't know exactly what we paid the cash for because the factory overhead doesn't really define that what we do know however is that whatever we paid for it was probably something on the factory because cash is decreasing and it's going into factory overhead so it should have been part of the inventory so things like utilities on the factory insurance on the factory anything that's on the factory that we couldn't apply to a particular job we're just going to dump into this factory overhead bucket next thing that happens is factory overhead goes down and work in process goes up meaning work in process was at 6430 it's going up by 6722 13150 factory overhead was at 7100 it's going down by 6722 380 now these are both kind of asset accounts they're both kind of inventory accounts this inventory account is going down we're putting it into work in process why well the factory overhead we really wanted it in work in process the whole time but we couldn't do so what was stopping us from applying these directly out to work in process we didn't know which job to apply them to now we must have figured that out we figured out hmm we figured out how to apply them to a job and we just used an estimate so we used some type of estimate to say I know which job to apply this amount to so I can support this amount on job cost sheets and therefore apply it to the work in process account so now the work in process account is here it includes direct materials direct labor and overhead and all of these numbers can be broken out and supported by job cost sheets next thing that happens is factory overhead is going to zero and had 380 in it we credited it by that exact amount making it go to zero cost to get sold went from zero up by 380 200 380 why would that happen well the factory overhead you know really never gets to zero unless we force it that to do so because it's only an estimate remember that these items represent indirect labor and direct material anything else on the factory that we couldn't apply to an actual job and these are actual costs and then we applied it out to the jobs using an estimate which means that they're never going to be exact those two things are never going to be exact either it will be under or over applied this act happened to be under applied because we applied less here then of the actual costs and therefore we had to close this out and the other side went to cost of goods sold this just being kind of like what we had to do doesn't have anything to do with actual cost of goods sold it's just an estimate it being small and therefore not affecting our our decision-making so not material that's why we can do it even though we don't exactly know exactly what happened because it's just an estimate that we're trying to clear out this estimate so that next period we can start at zero next thing that happens we see that the working process is going down from 13,150 down by 8,736 to 4,414 finished goods is going from zero up by 8,736 to 8,736 these are two basically inventory accounts there they're two asset accounts one is going down one is going up what is happening here well this is working process meaning the the jobs are still in process these are finished process jobs that means whatever some jobs must have been completed we took them out of the you know in process account and put them into finished goods account and so these two numbers then are going to be supported by job cost sheets we counted up those job cost sheets for which jobs have been completed and then transferred them from work in process to finished goods so this number then can be supported by job cost sheets what's still left in work in process should be able to be supported by job cost sheets next thing that happens is we debit accounts receivable bringing it up from 180,000 by 8,593 to 188,593 we see that the revenues the other side of that these two are the same number it's going from zero up by a credit to 8,000 by a credit of 8,593 to 8,593 and then we see cost of goods sold is going from 380 up by 6,610 to 6,990 and finished goods finally is going from 8,736 down by 6,610 to 2,126 so there's a lot going on here there's two journal entries happening and why would we combine those in one slide because that's the normal sales journal entry so we're recording the sale of our inventory the sales here is going up and the related account to that is is accounts receivable we've made a sale and accounts receivable goes up these two although they're usually the thing we focus on in practice are confusing here a little bit because they're not where our focus on is here our focus on through this entire process has been on the inventory which means finished goods inventory has now been completed and shipped and is going down from 8,736 down by 6,610 to 2,126 and the other side of that is not sales but cost of goods sold the expense account the expense of us you know our inventory which is the same as a merchandising company where this is a same transaction that you would see for a merchandising company that's just selling inventory except they wouldn't have finished goods inventory they would just have inventory so it's going to go from 380 up by that 610 6,610 to 6,990 the other side sales going up and accounts receivable going up is the other side of just the sales journal entry but it has nothing to do with really the numbers we've been tracking here if you want to tie this number into all the other numbers or how we got it from the job cost system you can't unless we use the job cost sheets to derive the sales number which may happen but it's not necessarily the case the sales number is not tied necessarily to the job cost sheet unless that's how we create the sales number so now if you want to take a look at the final sheet here if you can kind of go through this and and see how all these are related if you go through this and basically take and tie out the numbers that we have from just just the end result here you'll have a good idea of what is going on so for example if you can go through here and say okay here's here's the working process account here's the raw materials account and maybe even tie these out here's a one and a one on that one next thing that happened so that's working process that we tied out directly next thing that happened is a two raw materials went down here and that went to factory overhead and that's happened because this is indirect labor or indirect materials that went to factory overhead and so you can kind of tie tie those things out three what happened is this account here wages payable is going to work in process because we applied that out to work in process and then for what happened this wages payable is going to factory overhead for because that is going to be indirect labor and so if you if you just keep on going through that process and you can see the flow through here and see it how it all ties together within the GL accounts then that's a good practice to do because it gives you good information again just of the flow of a job cost system and it's also gives you just a good working with like these are basically T accounts GL accounts and just getting a good idea of debits and credits and how how debits and credits are flowing through the T accounts