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20.7 Prepare Journal Entries for a Job Order Cost System

Complete Journal Entry Flow​

Job order costing requires journal entries throughout the production and sale process. Here's the complete flow with journal entries.

1. Purchase Raw Materials​

Transaction: Purchase materials on account

Journal Entry:

300000 Raw Materials Inventory        €5,000
431000 VAT Recoverable                 850
   400000 Accounts Payable                        €5,850
To record purchase of raw materials

PCN Accounts:

  • 300000: Raw Materials (Class 3)
  • 431000: VAT Recoverable (Class 4)
  • 400000: Accounts Payable (Class 4)

2. Issue Materials to Production​

Transaction: Issue materials to Job #101

Journal Entry:

310000 Work in Process - Job #101     €400
   300000 Raw Materials Inventory                    €400
To record materials issued to Job #101

PCN Accounts:

  • 310000: Work in Process (Class 3)
  • 300000: Raw Materials (Class 3)

3. Record Direct Labor​

Transaction: Incur direct labor costs for Job #101

Journal Entry:

310000 Work in Process - Job #101     €290
   440000 Salaries Payable                          €290
To record direct labor for Job #101

PCN Accounts:

  • 310000: Work in Process (Class 3)
  • 440000: Salaries Payable (Class 4)

When Paid:

440000 Salaries Payable               €290
   510000 Cash                                      €290
To record payment of salaries

4. Incur Actual Manufacturing Overhead​

Transaction: Pay rent (overhead cost)

Journal Entry:

610000 Manufacturing Overhead         €500
   510000 Cash                                      €500
To record actual manufacturing overhead (rent)

PCN Account:

  • 610000: Manufacturing Overhead (Class 6)

Other Overhead Costs:

610000 Manufacturing Overhead         €200
   510000 Cash                                      €200
To record utilities (overhead)

610000 Manufacturing Overhead         €150
   241000 Accumulated Depreciation                 €150
To record depreciation (overhead)

5. Apply Manufacturing Overhead​

Transaction: Apply overhead to Job #101 (10 hours × €15/hour = €150)

Journal Entry:

310000 Work in Process - Job #101     €150
   610000 Manufacturing Overhead                    €150
To apply overhead to Job #101

Note: This credits Manufacturing Overhead (applied) and debits Work in Process.

6. Complete Job​

Transaction: Job #101 is completed

Journal Entry:

320000 Finished Goods                 €840
   310000 Work in Process - Job #101                €840
To record completion of Job #101
(€400 materials + €290 labor + €150 overhead)

PCN Accounts:

  • 320000: Finished Goods (Class 3)
  • 310000: Work in Process (Class 3)

7. Sell Job​

Transaction: Sell Job #101 for €1,500 (excluding VAT), VAT 17%

Journal Entries (Two):

Entry 1: Record Sale

410000 Accounts Receivable           €1,755
   700000 Sales Revenue (€1,500)                 €1,500
   430000 VAT Payable (17%)                         €255
To record sale of Job #101

Entry 2: Record Cost of Goods Sold

603000 Cost of Goods Sold             €840
   320000 Finished Goods                            €840
To record cost of Job #101 sold

PCN Accounts:

  • 410000: Accounts Receivable (Class 4)
  • 700000: Sales Revenue (Class 7)
  • 430000: VAT Payable (Class 4)
  • 603000: Cost of Goods Sold (Class 6)
  • 320000: Finished Goods (Class 3)

8. Close Underapplied/Overapplied Overhead​

Transaction: Close underapplied overhead of €200

Journal Entry:

603000 Cost of Goods Sold             €200
   610000 Manufacturing Overhead                    €200
To close underapplied overhead

Complete Example: Multiple Transactions​

Marie's Catering - November Transactions:

Nov 1: Purchase materials

300000 Raw Materials                  €2,000
431000 VAT Recoverable                 340
   400000 Accounts Payable                        €2,340

Nov 5: Issue materials to Job #101

310000 Work in Process - Job #101     €400
   300000 Raw Materials                            €400

Nov 6: Issue materials to Job #102

310000 Work in Process - Job #102     €1,750
   300000 Raw Materials                          €1,750

Nov 10: Direct labor for Job #101

310000 Work in Process - Job #101     €290
   440000 Salaries Payable                        €290

Nov 12: Direct labor for Job #102

310000 Work in Process - Job #102     €910
   440000 Salaries Payable                        €910

Nov 15: Apply overhead (50% of labor)

310000 Work in Process - Job #101     €145
310000 Work in Process - Job #102      455
   610000 Manufacturing Overhead                    €600

Nov 20: Complete Job #101

320000 Finished Goods                 €835
   310000 Work in Process - Job #101                €835

Nov 25: Sell Job #101

410000 Accounts Receivable           €1,755
   700000 Sales Revenue                          €1,500
   430000 VAT Payable                              €255

603000 Cost of Goods Sold             €835
   320000 Finished Goods                            €835

Nov 30: Actual overhead costs

610000 Manufacturing Overhead         €12,000
   510000 Cash (various)                        €12,000

Nov 30: Close underapplied overhead (€12,000 actual - €10,000 applied = €2,000)

603000 Cost of Goods Sold             €2,000
   610000 Manufacturing Overhead                    €2,000

Luxembourg Compliance Note​

In Luxembourg:

  • Must use proper PCN accounts
  • Journal entries must be accurate
  • Support all transactions with documentation
  • VAT must be handled correctly
  • Cost flows must be properly recorded
  • Maintain job cost records

Think It Through​

Why are there two separate journal entries when a job is sold? What accounts are affected and why?