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WIP Methods

Just taking a poll on how others account for WIP:

1) When job cost A/P is entered do you code it to expense account, and then end-of-month pull an "unbilled" costs report to see what WIP balance sheet account should be reconciled too? Then what entry do you make? Debit WIP/credit what?

2) Or (this is the way I do it) when job cost A/P is entered it is coded to balance sheet WIP account. Then the job summaries are pulled for every invoice (only revenue invoices NOT retainers or "advance billings" to start work) to see what costs are being recognized. We then keep an excel spreadsheet of COS. A journal entry is done to credit WIP and debit the appropriate COS account. I then pull an "unbilled" costs report to see what the WIP balance sheet account should be reconciled too.

What do you do?

Thanks

I use your second option, but you have also hit upon my one on-going complaint about C&P.

As we have grown, the requirement on maintaining the excel spreadsheet to track the actual costs of billing for the purpose of matching revenue recognition with cost recognition in the same fiscal period (for some reason accountants like that) becomes VERY CUMBERSOME.

We use C&P Pro and I would genuinely like to see the product enhanced to the point of true WIP accounting where the billing entry would recognize both the billing (debit: accounts receivable & credit: revenue) and the costs (debit: cost of billings & credit: WIP) automatically. I have had this feature with other "agency" accounting packages.

As it would require a major redesign of the C&P database layout and substantial reprogramming, I am not holding my breath for this any time soon.

Has anyone else come up with a better solution ?

JOHN AREVALO
CFO
Hughes, Ruch & Murphy, Inc.

We expense all job costs, then at end of month, run an audit trail report to identify WIP's and pre-bills. Our entry is then a dr. to WIP, credit to job cost expense, or a dr. to job cost expense and credit to accrued expenses (for pre-bills)

Pamela A. Brosch, CPA
Chief Financial Officer HSR Business to Business Inc.

There's an accounting practice at issue here. Many (including many accountants) might disagree with your accountant's insistance that revenue and expense be forced to match in the same accounting period regardless of when they were incurred.

C&P is a true job cost accounting system that recognizes revenue when the invoice is created, as it should. Assuming you set up and use your chart of accounts properly, it recognizes liabilities when invoices are entered, then reduces those liabilities and accrues the amounts as job costs when the invoices are paid, as it should.

C&P's features allow you to prebill from purchase orders if you wish, or to delay billings if you wish. Doing so either accelerates or delays revenues, as it should.

A look at the job summary report gives you profitability information that reflects revenues and costs as they are actually incurred, accurately reflecting the way your business really operates. A look at the open purchase order report lets you see your commitments in several ways, too, before they become hard liabilities. It seems that reality just isn't organized the way your accountant would like.

I for one would not want C&P to work as you request. In my opinion, your accountant's rule creates the appearance of a nice, orderly job profit picture each month, but it isn't an accurate one. Because profits really are determined by the date on which costs and revenues are incurred, not when you decide to end an accounting period.

Russ Norwood,
2g Marketing

I could not disagree more.

Your philosophy is cash vs accrual. I'll elect to run my business accrual any day of the week. And then keep a conversion to cash basis spreadsheet to forecast taxes.

Roxanne M. Cowan
Director of Finance
Rutherford Bolen Group

We also use the accrual method for Revenue and Expense. According to GAAP you should match revenue to expenses. By just record actual costs when the occur you don't have a true picture of profitability. I print a job cost summary for every job at the end of the month before new expenses are added and figure out using that summary what expenses need to be moved to a prepaid account and what revenue needs to be deferred because it wasn't earned yet. We have another issue that further complicates things which is that we bill 50% on every job. I don't recognize this revenue until the work is actual done so I use the job Summary reports to calculate % completion.

elaine ucciferri
accounting manager
H A R P E L L

In my opinion, I think entering income in one month (or period) and then entering the cost in the next month (or period) is not a true & clear financial picture. I used to use the WIP, and stopped it. It was not a true pix. Does this make sense? Sorry if I have confused anyone. But if I have any outside costs, I enter the cost based on my purchase orders. Call me if you have any questions at 800-273-8483. Happy Thanksgiving!! :)

Felica Sparks
Office Manager
Benton Newton & Partners Advertising

Just a suggestion.

We handle pre-bills or progress bills by accruing costs based on the planned margin for the job and then reconcile to the actual margin with the final billing. This does require that we have a manual "ledger" of pre-billed and progress-billed jobs so that we can handle our JEs properly.

JOHN AREVALO CFO
Hughes, Ruch & Murphy, Inc.
www.hughesruchmurphy.com

Would anyone using the cash basis method care to discuss how they are accounting for costs/revenue recognition and WIP? I'm new to this system and would like know how others are utilizing C&P.

Stacey Mejia