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.
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 |
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 two 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.
Recording Cost of Goods Sold
Observing the Finished Goods inventory account, we see in the accounting records that 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 |
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.