Why does the Contractor need Work-in-Progress Reporting?
1. Project Managers need to be able to stay on top of Projects.
Current WIP showing the current status of Projects gives PMs the opportunity to view and avoid the most common issues on Projects that cause Job overruns.
2. Contractor Accounting or what I like to call Job Cost Accounting is essential so that monthly adjustments to WIP are recorded in the Accounting. This eases the ebbs and flows in the normal operations of the contracting business. If, for example, you outlay a bunch of cash one month to buy Materials while the next month you take in a bunch of revenue for Projects, this causes your financials to have wild swings that are reflected in your accounting. Furthermore, the tax implications can be horrendous! Especially if you pay Estimated Taxes each Quarter.
The general rule is to set up 2 Accounts in your GL:
An
WIP ASSET Account
A WIP COGS Account
If your WIP By Date report shows that you Billed more than your Costs on the Job for the Month, do the following:
First, determine your NET WIP. BILLED – COSTS.
Debit
the WIP Asset Account by the NET WIP.
Credit the WIP COGS Account
by the NET WIP.
If your WIP By Date report shows that you had more Costs than what you Billed, do the following:
Determine your NET WIP by taking the COSTS – BILLED.
Credit
the WIP Asset Account by the NET WIP.
Debit the WIP Cogs Account
by the NET WIP.
Making a WIP Adjustment
Understanding Over- and Under- Billings requires that you Job Cost be up-to-date!
If your WIP Reporting is not based on accurate figures your financials will also not be accurately stating the current financial picture of your business!
To Learn More
If you would like to learn more about the importance of accurate Job Cost, Work-in-Progress reporting and how these affect your business financial picture, please contact COBRA Contractors Software (952) 933-2507 or email Jim@cobra-usa.com.
