ACC 543Week3Discussion

Job order costing system is a method for allocating costs to an individual job or order. An example of businesses that would use job order costing would be law firms and investment companies where individual customers represent a job. In process costing, costs are allocated to the production process and are a part of the end product that is created.An example of process costing would be manufacturing companies that produce large volumes of products such as food or pharmaceuticals. Both job order and process costing system are similar in that they both allocate expenses such as raw materials, labor, and overhead to end products in manufacturing processes. The job order costing system assigns unit costs to individual jobs or orders and records this information on a job cost sheet. In the process costing system, units costs are assigned to a specific department and is recorded on the department production report. Events in a job order costing system can impact financial statements by amounts billed to customers and amounts earned by the company. Example: An auto shop purchases parts for the business. This would be recorded as raw materials under the inventory category and included on the balance sheet. Parts used and labor being performed by mechanics would be recorded as work in process under inventory and listed on the balance sheet. Finally, once the labor was completed, this plus the costs of parts would be counted as finished goods on the balance sheet. Once the customer is billed and services are paid for, the cost of finished goods shifts to cost of goods sold and sales is the amount billed to the customer. This information is recorded on the income statement with the difference being the profit to the business. Events in process costing system can impact financial statements by affecting costs of producing goods or services. Example: A company that manufactures gears would assign costs to units produced or in process to the inventory account and record this on the balance sheet.Once the gears were sold, the costs would shift from the inventory account to the cost of goods sold account and sales account. This information would be recorded on the income statement.