 In this presentation, we will record journal entries related to wages, both direct and indirect within a job cost system. Information will be on the left. We're going to enter that into our general journal, then post it 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 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. General ledger being used to create the trial balance. Here is our trial balance. It's in order assets and then liabilities and then equity income and expenses. We of course are focusing in on the asset accounts, more specifically the inventory accounts as we take a look at the flow of a job cost system. What we're doing here is looking at the wages that are paid to people that work in basically the where in the construction of whatever we make for making guitars in the construction of construction jobs within the construction process to people that work directly on that as well as the people that work indirectly. We're going to have to sort those two out and record this information to understand this. We first need to think about that. We're really kind of just processing payroll here. We're processing payroll to people that work on the jobs. If they work in the factory and they're making guitars, they work in the factory. We're processing the payroll. Now, when that happens, typically we think that the journal entry, if we take out all the withholdings, we're not going to get into payroll withholdings and whatnot. But if we think about the simplified transaction of payroll transaction, it would be we're paying someone credit in cash. We instead are going to make a payable wages payable. And then the debit traditionally we would think would go to wages expense or something some type of expense. In this case, that's of course what the difference is going to be. And it takes a little while to really understand that this is going to happen a lot in a job cost system because we start to memorize if we've worked in other types of industries. A service company, merchandising company that every time we have payroll, it's just going to be wages expense. But in this case, when that's because of the matching principle before it used to be that we used those wages in order to help us generate revenue in the same time period. And this time, whether not generating revenue yet, they're making an asset, they're making inventory. So that's the first thing we need to realize. We're kind of processing payroll, but it's going to look different. And we're going to have to just basically unlearn if we just memorized kind of the payroll journal entry, which is the credit cash or credit wages payable and debit the expense. We're not going to debit the expense because it's not an expense type. What we're going to have over here is the jobs that they worked on, and that's what we will have to track. So let's take a look at that real quick on how that might happen from a forms basis, just an example. So we're going to go to the right over here all the way to the right. And we're going to have something like a time ticket, of course, and the time ticket is going to give us an idea of the jobs, the people that worked, the jobs that they worked on, so that we can track what job is being worked on. So just note that we're going to need some type of system within a job cost system to track which jobs are being worked on so that when we process the payroll, we can process it and select the correct account to hit, which is going to be the correct job account when processing their payroll process. So this individual worked on Job B-15, and that's where we need to apply the expense of the wages we're going to pay for this individual. Note that this could happen for a company that makes stuff or for a service company, like a service company, like a bookkeeping company may have a job cost system in a similar fashion. Also note that here we're applying out the actual cost. If we work in a bookkeeping company or something like that or law firm, we may have a billable rate for people that might be different, meaning we might make our invoices using some type of billable rate that's different from the actual pay rate. Or we might make our invoice with what we actually pay an individual and then mark it up, use some kind of markup in order to record it. Here, though, we're tracking the cost to the inventory, the cost to the job. So we're really using the actual number that we pay employees here. So I'm going to go all the way to the left again. So I've scrolled all the way back to the left. Now that we've just seen the documentation that might be used to create this, we're going to just look at the jobs here. This is the jobs and the direct labor that we are applying to them, which we're putting together by basically tracking as we as the employees work, typically in a database program of some kind, what job they worked on. So job B 15, we've got 1200 that's going to be applied for direct labor job B 16, 900 B 17, 560 B 18, 850 and B 19, 690 for a total of 4,200. So the journal entry then is pretty straightforward. We don't need to break it out for the journal entry, but we do need to break it out for the supporting documentation in each job. So the journal entry, we're just going to use this total here. It's going to go into work and process. And that's usually that's going to be kind of the confusing thing here, because again, typically we would think of it as an expense here. We are using these wages in order to help us generate an asset, which is going to be inventory, which is represented here by unfinished work and process. So it's a debit balance. We're going to make it go up by doing the same thing to it another debit. So we're going to right click and copy. We're going to put this in B 10, right click and paste 123. The amount in C 10 is going to be that 4,200. Then we're going to credit something for 4,200. I'm going to use the kind of plug formula of negative of that number and enter. And then we just need to see the amount. Now we could say that we paid cash, but typically a lot of book problems and in practice, we may go into wages payable first and then pay it at a later time. So I'm going to put wages payable. So J 14, right click and copy. We're going to put that in B 11, right click and paste 123 values only. So again, if this was a normal payroll journal entry for a non-manufacturing company, we would credit wages payable or cash and debit wages expense or something like that. And then we would have withholdings to we're simplifying the kind of payroll entry here, but we would debit wages expense here. We're not debiting the expense and that's kind of the tricky thing that we're going to have to see a few times over as we go through a manufacturing company. And that's because of the matching principle. We haven't used those wages to help generate revenue yet. They're going to help us generate revenue in the future. When we finally sell the inventory, we will expense it in the form of cost of goods sold. So the value of that work is going into the inventory, which is currently in process and therefore going into work in process. So let's record that out. Here's the work in process account. It's going to be one, two, three, four accounts down here. It's going to be four accounts over on the GL then we're going to try to just scroll back and forth. If you want to make the screen smaller, that can help to record. I'm going to try to keep it full size and use scrolling to do this. We could also freeze the pains, but we'll do it this way. So we're going to go to work in process. Here it is. We want to be in the debit. We are in cell S 10. I'm going to say equals and point to that 4,200 and that's going to bring the balance from 2002 30 up by 4,200 to 6,430. That then is being used to create this trial balance number and we're out of balance by the 4,200. Then we'll record the other side of this, which is wages payable. That's going to be our only liability account. It was a pretty simplified trial balance, but there's our wages payable. We're going to scroll over to wages payable. It's going to be a credit. So here's wages payable. We're going to be in the credit side of an X 19. So within X 19 equals I'm going to go all the way to the left until I find it wages payable. The last journal entry 4,200 and enter. So there it is wages payable 4,200. This number then being used to create wages payable here and we're back in balance. So our journal entry is back in balance and has been recorded here. Okay, so there's our process. Now, once again, we did something to work in process. And whenever we do that, we need to support this not only with the GL as we have here, but this only gives us the detail by date. We need to break it out by job. And remember, it's similar to like the accounts receivable being broken out not only by date, but by customer who owes us the money. Work in process needs to be broken out not only by date on the GL, but by job. Which job are we applying these costs to? So if we do that, that's where we're going to need this separate break out here in the sub account. So I'm going to go ahead and copy this and we'll bring it over. I'm going to go all the way to the right to where our jobs are. So here's our jobs over here and I'll paste this down here. Okay, so so now we're just going to apply this out that 4,200 is broken out job B 15. We're in B 15 direct labor and we're going to say this was 1,200 and then B 16 900. Here's B 16 direct labor 900 and then we're going to say B 17 560 B 17 560 and then B 18 850 B 18 850. And finally B 19 690. So we're going to go over here to B 19 and say 690. Now, if we add up our total jobs, they add up to direct materials, direct labor. These two add up to 1,230 being summed up across being summed up vertically. Here's our total 1,030. That's the case for all jobs. If we add up all of them, they're all open. All these jobs can do it this way. All these jobs add up to this amount. That should be equivalent to what's on the trial balance and GL. So we can see over here. We noted that this work in process was used to create this number and this number should be supported by this number and by the work in process. The jobs and and it is so we look good there. The last piece of this then is we're going to record this amount. This is the indirect labor and that's going to be anything on the factory that we couldn't apply to a job. So if we have like supervisor salaries or something like that, we don't know which job they actually worked on, if any. So they're working on multiple jobs. So we have to basically apply their salary to those jobs. If it's a maintenance or something in there, we might need if it's anything that's in the factory, where we make things if we're making guitars and whatnot, we need to be able to apply those salaries out to the jobs. So that's going to be the indirect labor here. So it's still going to be wages payable because we're processing payroll, but the debit now not going to work in process because we don't know which job it's going to. It's going to go to the bucket, which is factory overhead. So we'll right click and copy factory overhead. We'll put that in B 13 right click and paste 123. And then the amount is going to be 1200. We'll credit something run 1200 as well. I'm going to do that with a little like negative of that number. That's like negative plug formula. You could put just the negative 1200. That's fine too. But and then that's going to go to wages payable. Again, it's kind of like processing payroll like we could have said paid cash. We're not dealing with any of the withholdings here. We're just having a simplified payroll journal entry rather than depicting expense. However, it's going to an asset account, an inventory account. In this case, overhead until we we figure out a way to apply that overhead to a job. So we're going to right click on wages payable. We'll put that in B 14 right click and paste 123. And there we have it now. Let's record this one. We're going to post it to the general ledger. Here's factory overhead. Here's factory overhead. It's like the third to last asset account. Same order on the GL. So factory overhead is down here. So it's right there in S 26. So within S 26, I'm going to say equals go left. Going to find that last account. There it is factory overhead and pick up that C 13 enter. So within S 26 equals C 13 bringing the 550 previously in their up by 1,200 to 1,750. That 1,750 then is being used to create the trial balance out of balance by 1,200 until we record the other side. So here's the other side. Wages payable. It's our only liability account, which is nice and this nice small trial balance. So we're going to go find wages payable. There it is. It's going to be in the credit side again. I'm in X 20 X 20. We're going to say equals and then we'll scroll left and find that that accounts or scroll on left wages payable. We'll pick that up in D 14 and enter. So here's wages payable equals D 14. It was at a credit of 4,200. It goes up in the credit direction 1,200 to 5,400. That then is used to create the trial balance and the trial balance is back in balance debits equaling the credits. Debits minus the credits equals zero still no effect on net income here. And again, even though we kind of paid wages and you might and are thinking if we've thought about companies other than manufacturing companies is probably that there should be an expense related to wages expense. But no, it's there's not an expense because that was part of inventory. Anything that we had to pay for in order to conform or convert the raw materials to inventory is not an expense until we sell the inventory. It's part of the cost of inventory.