Job Costing (continued)
Costing Methods
There are two options available for applying expenses to Jobs; Expensing Immediately or using Work in Process accounts. If your company regularly performs jobs that span over a long period of time or do not open and close within the same accounting period, your company should consider using the Work In Process method.
Expense Immediately Method
If this method is used, transactions performed with expenses that are linked to a Job will immediately post to the cost of goods sold or expense accounts. When the Job is invoiced to the customer, the income will be posted to the general ledger. If the expenses for a job occur in one accounting period but the customer is not invoiced until the next month, you will have expenses without an income offset in the same accounting period. Using this method it is possible to have very high expenses and low income in the same accounting period.
Work in Process Method
When using the Work in Process method, transactions performed with expenses that are linked to a Job will be posted to a Work in Process account (balance sheet asset account). When the Job is invoiced to the customer, the expenses held in the Work in Process account will automatically move to the cost of goods sold or expense accounts. Thus income and expenses are recognized at the same time within the same accounting period. The movement of expenses in and out of the Work in Process accounts is all done behind the scenes by the application.
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