 In this presentation, we will take a look at a materials ledger card and materials requisition form. This is going to be an example of a materials ledger card. Support a counting 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. And you can note that it's going to look very similar to us tracking inventory. We're basically tracking the inventory of materials. So if you work with a merchandising company, a company that purchases and sells inventory, we'll have a similar kind of tracking system that we might use for the tracking of inventory. In this case, of course, we're using it for one component of inventory, one component of in this case, the type of services or the type of inventory that we make. So if we make guitars, for example, the major component might be wood. And so we would have to track that major component in a similar way that we would have to track the entire units of inventory for a merchandising company. So we might have things like on the inventory items. In this case, we're going to say it's the wood planks. We might have a stock number, we might have a location in the store room if we have a large store room, maximum quantity, minimum quantity and quantity to reorder a reorder point when we want to reorder. And then we're going to break this out then to the received, issued and balance. So this means received, like we purchased it and we have received it. So this is when we're getting the inventory issued would be similar to our sales type of item or the cost of goods sold if we were a merchandising company. In this case, we're not selling it. It's not leaving the company. It's going to another department. It's going from our warehouse basically to the production department to the factory to the work in process. And then we're going to have the balance here, which is going to be what we what is kind of on the balance sheet as of the ending product. So if we think of the balance sheet, this is going to be what is still included in our inventory items of just raw material. And then we might be tracking this information. For example, on March 4, we said we had received. So we have a receiving report. This is going to be the documentation we might use in a large company to tie this out to the receiving report. So in other words, this came from a receiving report that the warehouse would have received this information counted it. We have then the receiving report two units, and then we're going to have the unit price 225. And then the total price is the two units times the 225 or 450. Now if we bring this over to the balance, we started with one unit at 225 or 225. And now we're bringing over this two units. So now we've got the two units and the one unit or of course three units, they still all cost 225. And therefore three times the 225 means we have a total of 675. So as of March 4, we have $675 worth of inventory for wood planks. And then we're saying this time we have an issuance on March 7, we had an issuance. What why would we issue? Well, there was a request from the working process for say there's a new guitar we need to make and they ordered some planks of wood one blank of wood apparently. And we then have a requisition form. That's going to be the form from the working process, the factory saying hey, we got a we've got a project that we need to work on. Here's the form. We're going to say this for one unit one plank cost 225. Notice this isn't the sales price. We're not dealing with any sales as all internal purchasing going from one department to another now to work in process to the factory. Here's the total. If we go to the balance then we have three units. We just issued one from the warehouse. So how many are left in the warehouse only two times the 225 and that gives us the 450. Now a couple things to note here. Note that obviously you might think well, wait, we still have three units because it only went from one department to the other. And that's true. But we're not going to be tracking it here in work in process. Now it's not going to be included in the balance sheet account of materials. It's going to be included in the balance sheet account of work in process. We're going to apply it this one unit now it's going to be applied from this materials to the work in process GL account and be supported by a job cost sheet as opposed to being tracked in our just materials ledger. Also note that this system works well if these units planks of woods don't change in value meaning if the planks of wood become more expensive over time just because of inflation then we're going to have similar issues that we have with inventory tracking. We're going to have to use some type of method actual cost of the inventory and track it specific identification or probably some kind of cost flow like first in first out the assumption that we have a first in first out assumption last in first out or average. So we'll have those same kind of inventory tracking problems that we have for the materials ledger as we would for just inventory in general. And then we got this would be the requisition form. So when we had this item here this isn't going to be the same form but when we had this requisition this is the type of form that we would use for the requisition and remember in a big company then we would have to have this process of one department requisitioning. So if I'm in the warehouse and I'm asking for a plank of wood it I'd have to go I'd have to go I mean if I'm in the working process the factory and I need a plank of wood to make our project then we might have to use a requisition form to get that wood from the warehouse. Now of course the smaller company is then and if we're a construction company working on a job then the requisition forms might be similar to just the receipts you know that we're using in order to purchase materials that will then be supportive of what we're going to be using in the in the working process. So the requisition form here is being used for us to take it from the warehouse that it's already been purchased but it's also going to be the form that we're going to use in order to apply it to a job when we create the job cost sheet. So the requisition and so when we create if it was if we were a smaller company we might use you know receipts to create of course the job cost sheet for the materials that we would be purchasing. So we're going to have the job number that we're going to have on here the materials the quantity that we need one plank of wood quantity provided hopefully they're the same unless the you know the department didn't give us even maybe they didn't have the warehouse didn't have all we need and then we usually have it filled out by because we want to be able to track an audit trail that we have here and then and we've got the date the materials description the plank of wood this is the requester and this is filled by so obviously we want to have the two individuals we want to have someone requesting one one filling it out that gives us a system of controls meaning it would be difficult to steal the plank of wood if we have to have two people involved in the requisition process without having some type of collusion in order for that to happen date provided and material received date and any remarks that we might have so this would just be the form just just a form for us to get that wood from the warehouse to the working process so we can start working on it and remember that all ties out to to this format as well so this requisition form is going to be used here on the on the material side to get the materials out of there and it's also going to be used on the supporting document not that this isn't the actual form we'll see here but it'll also be used in this document which is the job cost so we're moving the materials then over here to the to the job cost system so we're still have our our job job 15 and we're going to allocate this requisition form to it and that will that will mean that we're still tracking the wood it's still there it hasn't left the company because we haven't sold it yet but now we're tracking it in the account of work in process and that account is not supported by us us tracking the inventory and just planks of wood it's supported by our job cost sheets so our job cost sheets are now supporting that piece of inventory and we're going to have it in this job cost sheet up until it's finished and then we'll have the job will move to finished goods and it'll still be supported by this job cost sheet and then we'll finally sell it and once we sell it we'll then move this all these costs all these inventory that we bought and you know all the material we bought all the labor we did all the overhead will then be finally expensed in the form of cost of goods sold at the point of sale now we'll take a look at a journal entry related to the materials requisition so every time we have a materials requisition we're going to have a journal entry for it for the general ledger accounts here we're going to say for all these different jobs so we're looking at all these jobs and we had all these requisitions for these jobs we're going to sum up those requisitions so we're just taking these documents and summing up the materials that were requested and that's going to come up to total of 2,230 so the journal entry then we will have is going to be the raw materials going down the raw materials here are going down and then it's going to be moved to the work in process account so raw materials is an asset account it has a debit balance we're moving it from the raw materials from the warehouse so that's going to decrease and we're going to move it not too far to another inventory account to work in process so work in process is an inventory account it's an asset account it represents the inventory we're working on it's going to be increased now that's going to be for the direct materials those that we can apply directly out to the guitars if we're making guitars now there also might be some materials that are indirect meaning something like glue or something like that if we're making guitars and if we say that there was requests for for a glue or something like that that was indirect that we couldn't assign to a job we didn't know job applied it we just are basically taking stuff from the warehouse and assigning it just in general to be in the way we just gave them glue they can be assigned to anybody who wants to use it in the middle on any guitar that they start to work on then we don't know what's job to apply it to here and so those may still come out of just the materials we might still have just materials that will be there or we might try to track those types of materials separately so in other words we might have a materials account that includes all materials direct and indirect or we might try to have another account just just has the indirect stuff and and track those separately in this case we're going to say they're all in raw materials and then the indirect materials we're going to say okay that raw materials is going down by 550 and the debit's not going to work in process why because we don't know which job to assign it to it just went into the warehouse and anybody who's making a guitar either any of these jobs that are working on a guitar can use the material so that means that we can't assign it yet we can't put it to work in process because we cannot support it we can't back it up by particular jobs so therefore we're going to put it into the bucket factory overhead it's still kind of an asset because ultimately it's going to go into the work in process it's just that we're going to have to assign it to a job first we're just going to put all the stuff into a bucket and then find some way to assign it to a job so if we look at those journal entries then we're going to post out the work in process started at zero it's going to go up by two thousand two hundred two two thousand two hundred and you can see that work in process then is here on the trial balance and then the raw materials here's the general ledger for my raw materials it was at one thousand five hundred one hundred fifty thousand it's going down with the credit two thousand two thirty two one forty seven seven seventy so we just moved it from raw materials to work in process and then this side factory overhead went from zero up by five hundred and fifty so here's the factory overhead at five hundred and fifty and then the raw materials going to go down again so raw materials one forty seven seven seventy going down by five hundred fifty to one forty seven two hundred twenty and that then is going to be the one forty seven two twenty so so here I was one forty seven seven seven before now it's down to the one forty seven two hundred twenty that's represented here on the trial balance after both of these have been completed note that none of this this whole process is not doing anything to the income statement we bought the materials we were starting to use the materials never going to hit the income statement never affecting net income until when's it going to affect net income when we're finally done we move these from work in process to finished goods and then we move them from finished goods to actually selling them moving them to cost of goods sold now we will sell it sales will increase at the same time at that point but what we're working on is the cost of goods sold that will will ultimately be the cost so all the stuff we're doing here is just kind of shuffling around on balance sheet accounts just shuffling around basically on inventory asset type of accounts to track this process as it goes through and being able to support the process with job cost sheets