Understanding..

Financial Accounting under

Jobs in Manufacturing

Compiled by Aliyyah Abdullah

In this session, we will be talking
about Financial Accounting under
Job costing, which totals costs by
individual jobs
To understand this method, You
must know that inventory or stock
goes through a series of steps and
these changes are reflected
throughout the financial
statements
 The material flow

Raw Materials Work in Process Finished Goods

Inventory
Purchase the material

Everything begins with a purchase so

we:

Dr- Raw Materials (An asset so this

increases)
Cr- Accounts Payable (a liability and
this also increases)
Use the material

We start using the raw materials in

production so we:

Dr- Work in Process (because stock is

now in a different state)
Cr- Raw Materials (as it has now moved
between steps 1 and 2)
Labour

Labour works on this job so we:

Dr- Work in Process (because their

work is part of the cost)
Cr- Payroll liabilities (because they
need to be paid)
Indirect costs

we incur other indirect costs such as

factory rent so we transfer this to the
manufacturing overhead

Dr- manufacturing overhead

(indirect costs)
Cr- Accounts payable (because we’d
need to pay these costs over the next 30
days)
Job complete

When the job is finally completed, we

move our accumulated manufacturing
overhead to work in process:

Dr- Work in process

Cr- Manufacturing overhead (account is
now 0)
Transfer all work
in progress

We can now transfer all of the work in

process to finished goods because the
job is completed.

Dr- Finished Goods

Cr- Work in process (with all of my
costs)
When we sell

So what happens when we sell this

job? We hit our sales

Dr- Accounts receivable (because the

customer now has to pay us)
Cr- Sales revenue (because we are
selling it)
Cost of goods sold

We must compare like with like within

a period and so if a job has been sold,
the cost must also be reflected

Dr- Cost of Goods Sold

Cr- Finished Goods
 Don't Forget

The material flow

Raw Materials Work in Process Finished Goods

Inventory
In job costing there might be
estimates of the job done at the
start of the period but once the
actual job flows then adjustments
may be provided at the end of the
period.
Have you learned something new
about financial accounting for jobs?

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