Subsidiary Ledgers and Records

Learning Outcomes

  • Prepare a job cost record

Obviously, the complicated systems used to track job costs are now automated as part of the overall accounting or enterprise resource system. However, it is still useful to imagine the process in terms of a more manual workflow.

For instance, often the first step after receiving an order would be for the production manager to put the job into the queue and to start an official job card.

Say for instance Jesus Sanchez orders a custom jazz guitar from a luthier company that uses job costing. The production manager would assign the job to a lead luthier and start the job card:

Job Cost Sheet for Job No. 5054
Customer: JobJesus Sanchez
Description:Cherry wood hollow-body f-hole jazz guitar
Date started:7/15/20XX
Date completed:
Date Direct Materials Description Cost Direct Labor Hours Std. rate Total Overhead $30/DLH
0Double line 0Double line 0Double line
Summary of costs
Direct Materials 0
Direct Labor 0
Mfg. Overhead 0
  Total Cost Single Line0 Double line

 

The company will likely use many forms to accumulate costs, such as a materials requisition form that will allow the production crew to remove raw materials from the warehouse:

Date:      July 17, 20XXMat. Req. # 702
Job #       5054
Quantity Item # Description Unit Desc. Unit Cost Total Cost
Supervisor signature _____________________________________ Single Line 0 Double line

 

In addition, company timesheets will have fields for direct and indirect time:

Start Time End Time Job # Hours Admin Hours Total hours
0
0
0
0
0
0
Single Line 0 Double line Single Line 0 Double line Single Line 0 Double line

 

Luthier Chas Martin initiates a requisition for materials, gets it signed, takes it to the warehouse, and the warehouse manager issues four board feet of cherry and a maple neck, and the transaction is recorded in the company financial records as a transfer from raw materials to work in process:

Date:      July 17, 20XXMat. Req. # 702
Job #       5054
Quantity Item # Description Unit Desc. Unit Cost Total Cost
4 541115 cherry wood bft $ 55.00 $220.00
1 A85MPL maple neck each $ 97.00 $ 97.00
Supervisor signature _____________________________________ Single Line $317.00 Double line

 

Chas works on that project and another during the day, and he also attends two administrative meetings. He turns in his timesheet:

Chas Martin – 7/17
Start Time End Time Job # Hours Admin Hours Total hours
8:00 10:30 5054 2:30 2:30
10:30 12:00 1:30 1:30
1:00 2:30 5054 1:30 1:30
2:30 5:00 5055 2:30 2:30
0:00
0:00
15163 Double line 6:30 Double line 1:30 Double line 8:00 Double line
Job: 5054 4:00
5055 2:30
Admin 1:30
Single Line 8:00 Double line

 

At the end of the day, the job sheet would look like this:

Job Cost Sheet for Job No. 5054
Customer: JobJesus Sanchez
Description:Cherry wood hollow-body f-hole jazz guitar
Date started:7/15/20XX
Date completed:
Date Direct Materials Description Cost Direct Labor Hours Std. rate Total Overhead $30/DLH
17-Jul Cherry wood $317.00 $        –
17-Jul         4.00 $25.00 $100.00 $120.00
$        –
$        –
$        –
$        –
$317.00 Double line $100.00 Double line $120.00 Double line
Summary of costs
Direct Materials $ 317.00
Direct Labor $ 100.00
Mfg. Overhead $ 120.00
  Total Cost Single Line $537.00 Double line

As you have seen, the total of all the job cards constitutes a “subsidiary ledger” that will agree with the general ledger control account.

A subsidiary ledger is a secondary ledger that provides the details of a control account.

A control account is a summarized account balance to make viewing financial statements easier. The total of the items in the subsidiary ledger must match the balance reported in the control account.

This concept relates to job costing because we have three main inventory accounts control accounts: Raw Materials Inventory, Work in Process Inventory, and Finished Goods Inventory. Raw Materials Inventory is used to store the costs of materials purchased but not yet used in production. The subsidiary ledger would contain details of the individual raw material components.

Work in Process Inventory is used when we have started but not completed a job and includes all job costs including any costs from the previous period. Costs added this period include direct materials, direct labor, and applied overhead. The subsidiary ledger consists of the job cost sheet showing all the direct materials, direct labor, and overhead costs applied to a job. The total of all jobs still in process will equal the balance of the Work in Process Inventory.

Finished Goods Inventory is used when we finish a job and before we sell it. We move the total job cost of the job from Work in Process Inventory to Finished Goods Inventory. The subsidiary ledger for each of the three accounts will be the job cards for the items in each of those categories.

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--Work in Process inventory and Finished Goods inventory

If the work in process subsidiary ledger looks like this:

Work in Process
As of July 17, 20XX
Description Total
Job 5037 $     1,059.00
Job 5044 $        677.00
Job 5046 $        842.00
Job 5047 $        120.00
Job 5054 $        537.00
Job 5055 $          62.50
Single Line$     3,297.50Double line

 

Then the control account in the general ledger will also show $3,297.50 in Work in Process, but the entries will be chronological and not sorted by job or project.

Here is a brief tutorial on how to use QuickBooks® to track jobs:

You can view the transcript for “Creating Job Cost Reports in QuickBooks” here (opens in new window).

Now, let’s check your understanding of subsidiary ledgers and other records and forms used in job order costing systems.

Practice Question