 I'm going to put it on the bottom of the date, right click and paste it one, two, three. 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 the 68,000 plus the 120,000 brackets. 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 accountinginstruction.thinkific.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. So all I'm doing is just adding up the 30, the 68, the 120, then making it negative. So that's a negative 218,000. If we credit something 218, we're going to have to debit something 218. I'm going to do that with a negative of this number. Take that number, flip the sign. You could just type in a positive 218. And what's that debit going to go to? And you might say, well, we paid for labor. That's payroll. Payroll. We know that payroll usually, if we think about the past problems that we've taken a look at payroll, it goes to payroll expense usually. But in this case, we paid payroll for the youth people's work to make inventory. And that's the thing we got to kind of wrap our head around when we start talking about inventory, because a lot of people just start to think about things like payroll and utilities as expenses inherently in and of themselves. But the only reason they're expenses is because we have consumed them in that time period to help us generate revenue. In this case, we didn't consume the wages to help us generate the sales in this time period. We paid for the wages to help us to generate inventory, these accounts. So we need to debit not an expense in this case, but an asset. That asset being the inventory, more specifically the inventory that's not yet done, that being the work in process. So work in process has a debit balance. We're going to make it go up by doing the same thing to it, which in this case would be another debit. So I'm going to copy that, we're going to put that in C, C 10, right click, paste it 123. All right, now I'm going to make this a bit smaller, we're going to post this to the general ledger. So I'm going to make it a little smaller so we can see the general ledger, I'm going to scroll over here so that we can see more of the general ledger as well as our journal entry, working processes here, working processes here on the trial balance, fourth account, working processes is over here on the general ledger, fourth account, we're going to scroll down to the next transaction in U 10. So U 10 equals that 218, that's going to bring this balance up to 651, which we can also see on the trial balance. We will then post the cash cash is here, first account on the trial balance, first account on the GL, we are in the credit side R nine equals and we're going to point to that 218, that's a credit cash has a debit balance bringing the amount down to 200, which of course we could see over here as well. Now we have affected once again the working process area, we need to back that up with the cost sheets as well by job and you'll recall that by job we have the 1415 and 60 broken out in this way. So we're going to post this 118, breaking it out into the 3068 and 120 in accordance with these three jobs. So let's scroll all the way over here again to our job cost thing where we have our three jobs those three jobs being 1415 and 16 as of the what is it that's 12, 112, we are going to scroll over to the direct materials column now and break it out in accordance to what we were seeing in our data. So 30,000 of the payroll is going to this this job and you might think well aren't we we're going to expense it sometime aren't we well yeah when we sell job for 14 or when we complete it and or when we sell the inventory related to what is being made in that job in the form of cost of good sold that's how we'll expense it. So then when we have that we have 112 over here and in column AO but also in the direct labor column we're going to put the 68,000 so we're going to increase that job and then we're going to scroll down here to job 16 on 112 and in the direct labor column we will include 120,000. Notice that that the payroll is not being allocated evenly here obviously in this case we would actually know what where each employee worked why because hopefully when we attract when we track the payroll we are recording which jobs these individuals are working on when we move to the overhead that will not necessarily that won't be the case and we'll have to figure that out but we can now see that the jobs add up to this 651 that 651 is also seen on the general ledger and is also seen on the trial balance therefore we're looking good they're going to bring it back up in the taskbar to 100% scroll over to the left and see what we have next kind of skip a line we are now on 116 where it says applied factory overhead based on predetermined overhead rate of direct labor all right so here's the thing that usually people get a little bit confused on and that's going to be the overhead so what's going to happen with the overhead is that overhead is going to include a bunch of stuff that we're going to include in there including down here we'll apply this stuff in there later which is the indirect materials factory utilities factory rent depreciation on the factory if you work any kind of book problem anything that says basically on the factory if you're working a job cost or a process cost then that's part of overhead because these types of things and some of these things again are some things that people just and just have ingrained in their head that they should be an expense for example utilities expense i mean utilities we usually think a lot of people are just going to say i hear utilities that should be a debit to utilities expense but that's not necessarily the case if we're paying the utility bill because it helped us generate revenue in accordance with the matching principle then yes it should be recorded in utility expense at the time we paid it or used it but if we use that utility in order to create an asset such as inventory in this case then we need to put it in terms of the asset it needs to be included in assets then it needs to be expensed when we sell the inventory in the form of cost of goods sold so for anybody that has kind of ingrained in their head certain types of expenses as always being an expense you got to kind of rethink that and say now i mean why is utilities expense this time it's utilities being paid on the factory and the factory is being used to make inventory the inventory hasn't yet helped us make revenue yet it's an asset therefore that utilities needs to be included up here in inventory now if you think about these things though if we have a warehouse and we're making a bunch of stuff in the warehouse and they're all different in size then we can't really just take these amounts for example like we can't just take these three amounts group them together and divide by in our example three jobs because remember the three jobs are all different in size so i can't just take whatever's in overhead and and divide it out by the number of jobs and we also can't apply the utility directly to a job i don't know how much of the lighting of the warehouse we spent on any particular job so then the question is how are we going to allocate utilities to the jobs i know that we need to but we can't do it evenly because the jobs aren't evenly sized and we can't apply directly to the jobs because we have no way to do so so we're going to arbitrarily do it in some way bigger jobs should get more of the overhead smaller jobs should get less of the overhead how are we going to do that and we're going to use some kind of cost driver to do that we're going to say how do we know if a job is one job is bigger than another job one way we might say we could say well if one job takes more labor hours than another job then that's how we're going to decide how big each job is in relation to each other that's what we're going to do in this example we could also if something is very machine intensive we can look at machine hours how many machine hours does one take versus the other so we came up with a 50 percent of labor and and that's an arbitrary number so that that i mean that number we came up with it's an estimate that we came up with it has nothing to do with labor overhead has nothing to do with labor or payroll that's just an estimate to make a see and see how large the jobs are so what is happening here is we're putting money into factory overhead we don't have any in there yet but we will allocate as we go through this job those things will be allocated in here in this example and then we're going to allocate it from factory overhead to the working process based on an estimate and that estimate is based on direct labor in this case so let's see what this is going to look like basically what's going to happen is raw materials is going to go up by us allocating all this other stuff that we think is going to be expensed in the form of overhead all this miscellaneous stuff we're going to apply that to the job when we allocate the payroll to the job when we allocate the labor to the job because we're using the labor to help us do that allocation so we have working process here it has a debit balance we need to make it go up by all this miscellaneous stuff that we're going to estimate that is going to be into each job we're going to make it go up by doing the same thing to it which in this case is another debit so we're going to copy the working process going to put that on top in cell c13 right click paste 123 now how are we going to calculate that estimate well it's going to be 50 50 percent of the direct labor so I'm going to just say it equals the direct labor we just did times 0.5 50 percent of direct labor enter so we're going to allocate 109 again this has nothing to do with actual labor payroll expense in this case all it has to do with is estimating how much of all that overhead that we are going to incur and just put into the overhead bucket we should allocate to each individual job based on an estimate that we have made all right so then we're going to have a credit for the same amount negative of this number and the credit is going to go to overhead now notice there's nothing in overhead yet and that's okay we're going to allocate it to overhead as we incur the costs and then we're going to apply them to the jobs based on a predetermined estimate and rate okay so we're going to credit overhead I'm going to copy overhead and we are going to paste it 123 right here all right so we're going to make this smaller back down to 80 scroll over here a bit we're going to post this out we're going to post this journal entry to the general ledger here's the working process here's the working process up here here's the working process on the general ledger we're going to increase it by the third amount that is in there remember we did raw materials then labor now here's the working process in u11 equals we're going to point to this 109 that's going to bring the working process up in the general ledger as well as in the trial balance then we're going to post the overhead here's the overhead here here's the overhead here we're going to go to the overhead that's like the third to last account right here on the assets so we are in the credit side this case so we are going to say equals and then in cell v 25 point to the 109 that's going to make this count go in the credit direction so it looks like we're overdrawn now because we haven't applied anything to overhead yet but there's the 109 credit then we also need to back that up on the general ledger so we're going to scroll over to the general ledger we have the 109 here we need to back that up on the job cost sheet so this is the general ledger we're going to back it up on the job cost sheet so we're going to scroll over to the job cost sheets over here we got job 14 15 and 16 so in job 14 as of the 116 in this case we're going to go over to the factory overhead and we're going to do the same calculation we did in the journal entry but we're going to do it by job in this case so i'm going to say this equals the 30 000 direct labor we apply to job 14 times point five and then so 15 000 of overhead we're going to apply there all this all the other stuff the bucket of stuff then we're going to go over here to ap 11 equals the direct labor of 68 times point five so we're just using the direct labor to allocate the overhead this case we have 34 notice we're not allocating the overhead evenly idea being that the jobs are different sizes idea being that this job's a lot larger than this job based on the fact that there's a lot more hours being spent on that job so then we're going to go down to aj 20 in the factory overhead column for job 16 equals the 120 direct labor times point five so there we have that and if we highlight the 15 000 the 34 the 60 it should add up to the 109 that we recorded on our journal entry if we add up all the jobs now we now have this uh 760 of that 760 should also be seen on the general ledger under working process right there it should also be seen on the trial balance under working process right there and so we are looking good i'm going to make it large again and back to 100 on the taskbar scrolling all the way to the left we can see our next transaction now so we are on 120 120 says we have indirect labor paid and assigned to factory overhead all right so we got indirect labor so basically the question being is cash affected and in this case we're going to say yeah cash is affected because we're processing payroll again so this is processing payroll we're going to simplify the payroll entry and just say that we are paying cash at the time we process payroll and cash has a debit balance we're going to make it go down by doing the opposite thing to it which in this case is a credit so i'm going to copy the cash going to put that on the bottom of the date right click paste 123 the credit will be for the 14 negative 14 000 we will then debit something for 14 000 now you might be thinking well we already did something where we processed payroll why are we doing this uh that was direct labor you told me that was payroll why is payroll down here again well we could have processed the payroll at the same time but the difference between direct labor and in this case indirect labor is that the direct labor we know that those are people that are working directly on the job indirect labor are things that uh we can't apply directly to a job so say we have a supervisor that's supervising a bunch of different jobs and we don't know how much time you spend on any particular job then we would just put supervisor salary into overhead and just allocate it based on this pre-determined rate that we had just we've already allocated using or if there are things in the factory such as janitorial service or stuff like that within the factory then those you know maintenance and all that kind of stuff of the factory then that type of thing we can't apply to a specific job as well necessarily and therefore we're going to put it just into this