2.3: Subsidiary Ledgers Needed for Job Order Costing

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If you remember from your financial accounting class, 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. Accounts Receivable is an example of a control account. We show the amount owed to use by customers in total on the balance sheet and do not list an accounts receivable for each customer on the balance sheet (could you imagine the length of that report?). We have a subsidiary ledger for each customer so we can determine who owes us money and who has paid. 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 3 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 include all job costs including any costs from the previous period and costs added this period include direct materials, direct labor and applied overhead. The subsidiary ledger consists of the job cost sheet (remember the video from the previous page?) 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 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 will the be for each job showing its full job cost until the item is sold.