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Project WIP at Cost

Approved, billable work that has not been invoiced yet is work in progress. For projects whose revenue is recognised as invoiced, at milestones or on completion, its cost can be carried on the balance sheet until it is billed, so the month's profit and loss is not hit by cost whose revenue arrives next month. Value WIP on the Projects & Time console works this out and posts the change.

Where to find it

Architect Panel → ERP - Projects & Time:

  • Projects & Time — the console: Value WIP on the Portfolio tab, the WIP accounts on Rates & settings
  • Revenue Recognition Settings — the per-company accounts, including Project WIP and WIP absorbed

Admin Panel → Projects & Time:

  • Projects & Time — the same console for finance staff and project managers

Which projects are included

  • Carried: plans recognised As invoiced, On milestone delivery or On completion. Their unbilled cost would otherwise sit in profit and loss with no matching revenue.
  • Not carried: plans recognised as performed, by percentage of completion or on a straight line. Their unbilled work is already accrued income at bill rate (see Projects, WIP & Revenue Recognition), so carrying the cost as well would count it twice.
  • Limited: WIP is never carried above what can still be billed: a capped plan's headroom, the unbilled work at bill rates, or a contract's unbilled value. Any excess is shown as written down.

This is project WIP. It is separate from manufacturing work in progress, which the stock settings hold on their own WIP account; keep the two on different accounts.

Setting up the accounts

  1. Open Projects & Time, choose the company and go to Rates & settings.
  2. In Project accounting: recognition, WIP and expense claims, choose Project WIP (an asset account carrying the cost of approved, unbilled work) and WIP absorbed (the profit and loss account the cost moves out of while it is WIP).
  3. Click Save accounts. Give both WIP accounts or neither; with neither, WIP is not valued. WIP absorbed must be a different account from Project WIP.

Valuing and posting WIP

  1. On the Portfolio tab, click Value WIP….
  2. Set Value as at (it defaults to the end of last month) and click Preview.
  3. Read the three figures: WIP at cost (what should be carried), On the WIP account (what the ledger carries now) and To post (the difference).
  4. Check the table: for each plan it shows the recognition method, Time at cost, Expenses, WIP and whether it is Carried, Limited or Not carried, with the reason.
  5. Click Post … to the ledger and confirm.

The journal posts only the change since the last valuation, dated at the valuation date: an increase is Dr Project WIP / Cr WIP absorbed, and a decrease releases WIP back to profit and loss. Value WIP at every month end and the WIP account always equals the current WIP.

What goes wrong

  • "Set the … accounts for this company in Revenue Recognition Settings before posting WIP": the two WIP accounts are not set.
  • No post button: either nothing has changed, or you lack post access to the company ("Posting needs post access to this company").
  • A plan you expected is Not carried: check its revenue recognition method on the project's Billing section.
  • WIP is written down: the cost of the work is more than can still be billed. That is a loss to look at, not a fault in the valuation.

Worked example

A support retainer is recognised as invoiced. At 30 September, 42 hours of approved, billable time have not been invoiced, costed at 1,890 at the consultants' cost rates. Value WIP as at 30 September shows WIP at cost 1,890, nothing on the WIP account, and 1,890 to post. The finance controller posts it. In October the time is invoiced, and the October valuation shows WIP at cost 0 and releases 1,890 back to profit and loss, in the same month as the revenue.

Recommendations

  • Value WIP after the month's billing run, so only genuinely unbilled work is carried.
  • Use the same valuation date every month, normally the last day of the month.
  • Keep project WIP and manufacturing WIP on separate accounts.
  • Investigate every write-down: it means a project is costing more than it can bill.