What is the account adjustment required for undercosted jobs?

When jobs are undercosted, it means that the costs allocated to those jobs are less than the actual costs incurred. In this situation, it is necessary to increase the Cost of Goods Sold (COGS) to reflect the true costs associated with the production of goods that have been sold. This adjustment ensures that financial statements accurately represent expenses.

By increasing COGS by the difference amount, the financial results will precisely reflect the true profitability of the company. Undercosted jobs would lead to an understatement of expenses, hence artificially inflating profits. Adjusting COGS corrects this discrepancy, providing a more accurate picture of the company’s financial health and operating performance.