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Work in Process

Message For those of you in graphic design agencies, I wonder if you could take a moment to answer some questions about the recording of WIP on a monthly basis. 1. Do you record WIP at the end of each month, not at all, or at some other frequency? 2. Do you record as WIP: a. Labor b. Hard (external) costs c. Internal charges? 3. Do you record WIP at cost (net in C&P terms) or at billable (gross) cost? Does it vary by the three areas above? 4. For labor, if recording at cost, do you use straight salary/wages, load with a benefit/tax estimate, or fully loaded (including overhead allocations as defined by IRS regs)? Thanks in advance.

Brent A. Byrd Sabatino/Day

1.) Never, all costs are recognized as period costs, non-inventoriable. 2.) No 3.) If you do use WIP it should be at net (cost based accounting) 4.) I'd only do direct labor

Does anyone carry WIP on the books?

Barry J. Owens Controller MAI Sports, Inc.

Hi Brett, We do a WIP report at the end of each month. I WIP for labor; hard costs and Internal charges. The labor is done on Salary/wages and the costs are at net rates. Hope this helps.

Lynn A. Ebben Marketlink, Inc.

We accrue WIP monthly. Included is labor costs, hard costs incurred and any internal charges (all at gross).

I was having trouble getting an accurate WIP accrual format from C&P so we now use a excel pivot table which makes the accrual much easier.

Lynnette Husted Financial Manager, BBFM Inc

Brent, We use the job costs to date that have been completed but not yet billed. To get WIP, I run a Work in Progress report out of C&P (Snapshots) using the Job Billing Worksheet for the range of job status' that includes all open jobs. I then review the report and make sure that no job costs are included that we will not be able to bill for (for example, when a job goes over budget we can not always bill the full amount to the client). I use the unbilled column from the report which includes labor, outcosts, etc.

Over the years, this method has worked well for us. It pretty accurately reflects what work has been completed that will definitely be billed.

For a subsidiary company that I also manage, I use the Client Job Summary Report for a work in progress total. From this report I use the estimate column as a total work in progress and then adjust it to include only the work that will be billed within a month. This company performs on a project basis with an estimated proposal up front so the day to day work in progress is not an accurate reflection of what is in progress.

I used to update work in progress weekly but with experience I have a good feel about what's in progress so I most often only need to adjust it monthly before running the financials. If financials are requested in the interim, I do an adjustment just to insure up to date accuracy.

Hope this helps. Cynthia -- Cynthia Hobbs Business Manager Marketing By Design

Message For those of you in graphic design agencies, I wonder if you could take a moment to answer some questions about the recording of WIP on a monthly basis. 1. Do you record WIP at the end of each month, not at all, or at some other frequency? Yes. Monthly 2. Do you record as WIP: a. Labor NO b. Hard (external) costs YES c. Internal charges? YES 3. Do you record WIP at cost (net in C&P terms) or at billable (gross) cost? Does it vary by the three areas above?

AT COST 4. For labor, if recording at cost, do you use straight salary/wages, load with a benefit/tax estimate, or fully loaded (including overhead allocations as defined by IRS regs)?

Johnson Paul Controller Campbell Michener & Lee Incorporated

We're a Marketing/PR firm, but this is how we record WIP:

1) At the end of each month, after billing is completed and all costs are posted for the month.

2) We only record outside costs in the WIP adjustment. We run an Unbilled Cost report and credit the job cost expense and debit WIP for any outside cost that wasn't billed. This is a reversing entry. Our labor is all in overhead, not job cost, so we let that hit the expense each month, whether it's billed or not. And, since internal charges only effect the job ticket, not the G/L, we don't include them in the WIP entry. Unless you're making a G/L entry when you post an internal charge... the items we post as internal charges are those such as color copy costs. The actual expense in the G/L for those are in overhead and that's where we leave them.

3) We record the WIP entry at net cost, since that's what hit the ledger in job cost. But, I know some people make the WIP entry as a debit to WIP and a credit to Revenue and leave the job cost in the P&L. In that case, you'd want to pick up the gross amount of the unbilled costs as your revenue amount..

4) N/A since our labor is all in overhead and I don't include that in the WIP adjustment.

Hope my rambling makes sense...

Jenny Hartman

We record the change in the WIP balance at the end of each month, but track the balance daily. It includes ALL costs dirstly attributable to jobs, and is reported at gross. Hope that helps.

Terry L. Jones, Jr.

For the WIP balance, I run the Billing Hot Sheet (Snapshots/Work In Progress). I change the Production Status range to to 899. This will ensure that all open jobs are picked up (900 is our code for Billed and Closed). Then I go to the bottom of the screen and click "Exclude overbilled tasks." When the report generates, I scroll through and make sure no pro-bono jobs have been included, then I take the total from the Unbilled column. That gives me the WIP balance. Hope that helps.

Terry L. Jones, Jr. Controller Harvey and Daughters, Inc.

We carry WIP on the balance sheet, and use "Unbilled Income" in the income statement to record the change in the WIP balance each month.

Terry L. Jones, Jr. Controller Harvey and Daughters, Inc.

I replied earlier, stating that we use a similar method. The main difference between our approach and Cynthia's is that we include ALL of the amounts in the Unbilled column. Our rationale is that we don't want to ignore ANY direct job costs, regardless of whether or not we are "over" on the job. If we have incurred a loss on the job, it will be recognized when the job has been billed and closed, writing off anything that wasn't billed. The other advantage to doing it this way is that our AEs are sometimes able to go back to the client and get more money, or we use the 10% over estimate option to recover additional costs.

Terry L. Jones, Jr. Controller Harvey and Daughters, Inc.

Labor is included in WIP for us. The "actual cost" is the employee's actual hourly rate plus a 25% markup for taxes, benefits, etc. The gross amount is what is reported in WIP, and that is at agency bill rates for each task.

Terry L. Jones, Jr. Controller Harvey and Daughters, Inc.

If you don't include labor costs in WIP, how are you able to track actual profit or loss on each job?

Terry L. Jones, Jr. Controller Harvey and Daughters, Inc.

1) Yes we record WIP monthly. I run client job cost reports (Job Costs/Client job costs) for "unbilled Costs" status. Also, anything billed between monthend and the time you run the reports won't show as unbilled so I run a report that shows me what was billed during the next month for previous time periods. I add those together to get the WIP. 2) We WIP all three, Labor, OOP, and Internal Charges at cost, to be conservative. 3) At Cost but internal charges we may do at gross if significant. Also, I review the labor report by client and determine if there is additional revenue I can accrue if I am short that month. So I WIP at cost but I will also do Revenue Accruals ( dr Acrrued AR and cr Revenue) for any time that I am confortable accruing and I know will be billed during the next month or two. I take into account some has already been WIP'd. I will automatically reverse it the following month and do a new JE at the end of each month. I try to be conservative and not over accrue or over WIP costs. It is better to underestimate instead of being too far over accrued. Not every dollar on a job gets billed. 4) Our labor costs include Salary plus a percentage for Payroll -Related costs. We don't include an overhead allocation.

Bill Scarpa

A side note. I was always taught and told that you WIP OOP costs only and revenue is only recorded when billed. But since I accrue time revenue I feel it is OK to WIP time. Either at net or gross. Is that how others see that or has things changed?

Bill Scarpa

Lynn,

Do you just make a month-end adjusting entry to debit WIP and credit direct labor or do you really keep inventory accounts and sub-accounts?

User

I do not use a WIP account at all. I don't see service time as inventoriable. However, I do see the merit to trying to match your revenues with expenses.

I expense labor and other job costs as incurred (period costs), advance bill (credit to unearned revenue), and recognize the revenue as it is earned (debit unearned revenue and credit revenue).

Do Law and CPA firms (other like service companies) inventory their time?

I question these monthly WIP entries as to being in accordance with GAAP mainly because of how the amount is calculated. By using the WIP reports or other unbilled cost reports you could materially misstate your financial statements.

For example, John has a net labor rate of $48 ($80k / (2080 x 80%) and is paid roughly $6,667 ($80k/12mos) each month. Say he applies 240 hours of unbilled time to open billable jobs. This would account for $11,520 to be debited to WIP and credited to direct labor. Thus, increasing assets, lowering costs and increasing net income...

User

We don't record WIP at month end but steps are taken to be sure we have billed all external costs in the month the cost is posted. We run job reports every week and bill accordingly. Before month end I make sure any costs not billed get invoiced in that month. As far as labor, we cost some of it to jobs and some of it to overhead which is done with a journal entry at month end. Since we bill weekly, we usually have a pretty good handle on the amounts we cost and bill each month. If WIP is recorded, then labor and hard costs should be taken into account at cost not at billable amounts and internal expenses shouldn't be put into WIP. We expense all of the payroll burden, but the cost of our labor to clients is sufficient to cover our actual burden costs.

Robin Scully Design and Image Communications, Inc.

Hi Brett, I make an adjusting entry at month end. I have a separate account set up titled WIP Adjustment under job costs and then I have of course my WIP account under assets. Therefore, my adjusting entry may not always be a debit to the WIP account depending upon whether WIP increeased/decreased in regards to the previous month.

Lynn A. Ebben Marketlink, Inc.

GAAP requires recording of inventory (WIP) if it's material. If it's not specifically stated somewhere then it's under the general principle of matching revenues and expenses.

Those who use C&P's billing worksheet & similar reports are effectively recording the profit on a percentage-of-completion basis, which is allowable but unusual for smaller entities (it's required by IRS for large projects, things on the order of rebuilding Iraq.) Personally I record at cost (remember that there is a cost field for labor also in C&P) so that we record profit when the job is done. I've found that our people are too unable to project the profit level of a job to feel comfortable recording the profit until it's over.

Law and CPA firms don't normally use cost associated with WIP (at least relative to the books -- there may be internal reports using costs). All time is booked at billable rates. There are numerous options as to when it is booked and when it is recognized. It may not be booked until it's received; others book when it's actually billed and may or may not set up a contra entry; some book as worked and offset with a contra; others may be on full accrual and book as unbilled A/R and revenue when worked. It depends on cash vs. accrual basis, internal preferences, programs in use, etc. And of course some may use combinations for tax vs. financial statements. As with many C&P users, most (if not all) also have "in-house" jobs to book admin and other unbillable time to. The unbillable difference is generally not material, although law firms may build up incredible amounts of time on contingent jobs that never get paid.

For those who'd like a summary, and without getting into exact counts, virtually everyone records some sort of WIP. Almost all record hard disbursements as WIP. Most record labor; a majority, although weaker, internal charges. Generally the recording is at cost. Only a small percentage record an allocation of benefits or overhead to labor. (For those interested, the Uniform Capitalization rules of the IRS do require this. I'm not sure if there is a revenue or inventory $$ cutoff -- there wasn't the last I can remember, but I haven't looked lately. It's a bear to figure out.)

Thanks to everyone for their replies to my original query.

Brent A. Byrd Sabatino/Day LA

Moderator note: this was sent in error without the author's name; it is being resent correctly. ---------- I do not use a WIP account at all. I don't see service time as inventoriable. However, I do see the merit to trying to match your revenues with expenses.

I expense labor and other job costs as incurred (period costs), advance bill (credit to unearned revenue), and recognize the revenue as it is earned (debit unearned revenue and credit revenue).

Do Law and CPA firms (other like service companies) inventory their time?

I question these monthly WIP entries as to being in accordance with GAAP mainly because of how the amount is calculated. By using the WIP reports or other unbilled cost reports you could materially misstate your financial statements.

For example, John has a net labor rate of $48 ($80k / (2080 x 80%) and is paid roughly $6,667 ($80k/12mos) each month. Say he applies 240 hours of unbilled time to open billable jobs. This would account for $11,520 to be debited to WIP and credited to direct labor. Thus, increasing assets, lowering costs and increasing net income...

Barry J. Owens Controller MAI Sports, Inc.

We are a publishing company using I&P inIthe marketing department - we need a way of tracking designers (outside designers). Any way of doing this?

Alan Pitts

What is the best way to track outside design studios in C&P and get a report with all outside designers, in-house team, project title and number?

Alan Pitts

Is their a way to input work orders into the system where it would automatically go into the work scheduling for that job? Currently we are putting in the work order and then copy and paste the information to the job scheduling area to add in the estimated time, due date, and resources.

Jamie Boggess