Accounting for Completed Jobs

Learning Outcomes

  • Record completion and sales of finished goods

COMPLETION OF A JOB

At the end of the month, Jackie sorts the job cards into two piles: jobs still in process (sitting on the workbench) and completed jobs. Job 1 was completed and shipped, and Job 2 is done but sitting in the warehouse waiting to be sold. She now has to update her accounting records to record the movement of the jobs from work in process to finished goods.

Two horizontal flowcharts are shown. The first flow chart is labeled “Physical flow of inventory”. It shows four boxes, from left to right, Materials storeroom, Production departments, Finished goods storeroom, and Delivered to customers. The second flowchart is labeled “Job costing”. It shows four boxes, from left to right, Raw Materials inventory, Work in Process inventory, Finished Goods inventory, and Cost of Goods Sold. Below Work in Process inventory, there are two additional boxes pointing to it, Direct labor and Manufacturing overhead. Two boxes are highlighted--Finished Goods inventory and Cost of Goods Sold.

Job Sheet – WIP Job 1 Job 2 Job 3 Total WIP
Subcategory, Direct Materials
      Wood 100 100
      Wheels/trucks 0
Direct Labor 0
Overhead allocation 0 0
Total Job Cost Single Line0Double line Single Line0Double line Single Line100Double line Single Line100Double line
completed completed

 

Job Sheet – Finished Goods Job 1 Job 2 Job 3 Total FG
Subcategory, Direct Materials
      Wood 100 100 200
      Wheels/trucks 50 100 150
Direct Labor 400 600 1000
Overhead allocation 1200 1800 3000
Total Job Cost Single Line1750Double line Single Line2600Double line Single Line0Double line Single Line4350Double line

Costs of completed jobs that are moved physically to the finished goods area of the factory also have to be moved in the accounting records from work in process to finished goods.

Date Account/Explanation Debit Credit
Jul 31 Finished Goods Inventory         4,350
      Work in Process           4,350
To move Jobs 1 and 2 to Finished Goods

 

A journal entry dated July 31 shows a debit of $4,350 to Finished Goods Inventory and a credit of $4,350 to Work in Process with the note “To move Jobs 1 and 2 to Finished Goods”. Each line item in the journal entry points to the corresponding debit or credit on its respective t-account.

Posting this entry to WIP leaves a balance in that account of $100, which comports to reality. If an auditor walked into the shop at the end of the day on July 31, she would see 2 units of wood on the workbench, which equates to a cost of $100. Looking at the job card, she would see that no labor had been applied (and that would probably be obvious just looking at the untouched wood as well). It is imperative that the accounting records reflect physical reality.

A t-account for Work in Process shows a debit of $100 beginning balance, debits of $450, $100, $700, $100, and $3000, a credit of $4,350 dated for July 31, and a debit of $100 ending balance.

 

RECORDING COST OF GOODS SOLD

However, observing the Finished Goods inventory account, we see in the accounting records, both Job 1 and Job 2 are listed in the ledger, but in reality, Job 1 is gone and out the door, while only Job 2 remains. Therefore, Job 1 is determined to be Cost of Goods Sold, and Jackie needs to make a journal entry to reflect that.

Job Sheet – WIP Job 1 Job 2 Job 3 Total WIP
Subcategory, Direct Materials
      Wood 100 100
      Wheels/trucks 0
Direct Labor 0
Overhead allocation 0 0
Total Job Cost Single Line0Double line Single Line0Double line Single Line100Double line Single Line100Double line
completed completed

 

Job Sheet – Finished Goods Job 1 Job 2 Job 3 Total FG
Subcategory, Direct Materials
      Wood 100 100
      Wheels/trucks 100 100
Direct Labor 600 600
Overhead allocation 1800 1800
Total Job Cost Single Line0Double line Single Line2600Double line Single Line0Double line Single Line2600Double line
sold and shipped warehouse WIP

 

Job Sheet – Cost of Goods Sold Job 1 Job 2 Job 3 Total COGS
Subcategory, Direct Materials
      Wood 100 100
      Wheels/trucks 50 50
Direct Labor 400 400
Overhead allocation 1200 1200
Total Job Cost Single Line1750Double line Single Line0Double line Single Line0Double line Single Line1750Double line

 

Date Account/Explanation Debit Credit
Jul 31 Cost of Goods Sold         1,750
      Finished Goods Inventory           1,750
To move Job 1 to Cost of Goods Sold

 

A journal entry dated July 31 shows a debit of $1,750 to Cost of Goods Sold and a credit of $1,750 to Finished Goods Inventory with the note “To move Job 1 to Cost of Goods Sold”. Each line item in the journal entry points to the corresponding debit or credit on its respective t-account.

The Work in Process account now shows a balance of $100, and the Finished Goods account now shows a balance of $2,600, which represents the cost of Job 2. Job 1 is sold, and the cost of that job is now shown as Cost of Goods Sold and offsets the Sales Revenue of $2000. We can see that MaBoards made a gross profit of $250 on Job 1. That gross profit would go to pay selling, general, and administrative expenses and anything left over would be a net profit that Jackie Ma could either reinvest in the business or withdraw and spend on whatever she wants to spend it on.

There is one more step, and that is to account for under or over-allocated Factory Overhead, but before we do that, check your understanding of recording finished goods and cost of goods sold.

Practice Question