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Job-order and process costing systems

Compare and contrast job-order and process costing systems.
How can events in a job-order costing system affect financial statements? Provide a specific example.
How can events in a process costing system affect financial statements? Provide a specific example.

Full Answer Section

Here is a table summarizing the key differences between job-order costing and process costing:

Characteristic	Job-order costing	Process costing
Products or services	Unique or customized	Mass-produced
Cost accumulation	By job or order	By process
Cost assignment	To the customer when the job is completed	To the products produced during the process
Examples	Custom furniture, custom software development, printing	Paint, soda, paper

Here are some examples of how events in a job-order costing system can affect financial statements:

When a job is completed, the costs associated with that job are transferred to the finished goods inventory account. This increases the balance in the finished goods inventory account and decreases the balance in the work in process inventory account.
When a job is sold, the cost of goods sold is increased by the cost of the job. This decreases the balance in the finished goods inventory account and increases the cost of goods sold account.
If there are any unused materials or supplies at the end of the period, the cost of these materials or supplies is transferred to the cost of goods sold account. This decreases the balance in the materials inventory account and increases the cost of goods sold account.

Here are some examples of how events in a process costing system can affect financial statements:

When the costs of a process are incurred, they are transferred to the work in process inventory account. This increases the balance in the work in process inventory account.
When products are completed, the costs associated with those products are transferred from the work in process inventory account to the finished goods inventory account. This decreases the balance in the work in process inventory account and increases the balance in the finished goods inventory account.
When products are sold, the cost of goods sold is increased by the cost of the products sold. This decreases the balance in the finished goods inventory account and increases the cost of goods sold account.

Sample Answer

Job-order costing is a costing system used to track the costs of products or services that are unique or customized. In this system, costs are accumulated by job or order, and the costs of each job are assigned to the customer when the job is completed.

Process costing is a costing system used to track the costs of products or services that are mass-produced. In this system, costs are accumulated by process, and the costs of each process are assigned to the products produced during that process.