This module refers to Job Work in Progress (WIP) within Workbench.

OVERVIEW

Work in Progress is a technical term that allows for the accurate recognition of profit at a point in time for jobs/contracts which are not yet complete. Chartered Accounting bodies recognise the need for an effective internal financial budgeting and reporting system to provide accurate costs and reliable estimates in the recognition of contract profit. Workbench provides this foundation and also provides the tools to calculate Work in Progress information so that profit can be accurately recognised.

Philosophical approaches to WIP.

There are two main philosophical approaches to WIP, costs and revenue

All costs and sales invoices are passed through the Income & Expense portion of the General Ledger. (Profit and Loss Account)/(Statement of Financial Performance). WIP is shown by reports run at month end which show Revenue, Costs and % of Profit Earned on all Jobs. A general ledger journal is done to adjust the Profit & Loss Account with corresponding entries that recognise WIP as an asset in the Balance Sheet (Statement of Financial Position). The WIP adjustment to the Profit & Loss Account could adjust Revenue or Cost of Sales.
All costs and sales invoices are passed through to the Balance Sheet WIP asset account. Reports are run at month end which show Revenue, Costs and % of Profit Earned on all Jobs. A general ledger journal is done to adjust the Balance Sheet WIP with corresponding entries to Costs and Revenue in the Profit & Loss Account. This method would best suit the WIP type ‘WIP at Finalised’ where no costs or revenue are recognised in the Profit & Loss Account until the project is completed.

From Workbench’s point of view the issue is academic even though the first option is the assumed position. Costs and Sales Invoices are exported to the Financials of choice based on designated GL Accounts (See integration manual). These could equally be P&L or Balance Sheet codes.

The basis for the WIP calculation is determined by the Charge type on each job. This means that a number of WIP options can be used on the various types of job in your organisation.

Job WIP can be divided into 4 categories. These are reflected in the WIP Types in Charge Type Maintenance:

Earned Revenue : The unbilled value of work to date, based on costs incurred, marked up by the budgeted margin percentage for the contract, less invoicing to date.
Forecast Revenue : This method recognises the forecast final profit on a percent complete basis.
Input Revenue : The unbilled value of work to date, priced at cost or charge out.
Output Revenue : The unbilled value of outputs to date, priced at schedule of rates.

Monthly Processing

The creation and review of the Work in Progress is a formal process that takes place at the end of each accounting period. This formal process could be summarised as follows:

Complete timesheets, accounts payable and accounts receivable processing
Generate purchase order accrual. For the WIP process to take account of PO accruals the purchase order accrual process will need to be generated.
Generate Work In Progress
- The WIP calculation if Reviewed or Approved will not be updated.
Print WIP reports and/or review through Edit/View Work In Progress
Make adjustments through Edit/View Work In Progress screen
Update WIP journal to General Ledger

WIP decisions on the Charge Type

WIP Types
- Earned Revenue.
- Forecast Revenue.
- Input Revenue at Cost.
- Input Revenue at Retail.
- Output Revenue at Retail.
- Input and Output Revenue at Cost.
- Input and Output Revenue at Retail.
- At Finalised. No profit is recognised in the Profit & Loss Account until the Job is finalised. When finalised the Job is not WIP'd. Finalised Date needs to be <= Period End Date.
WIP Consolidation. - This relates to the 6 levels of Job Hierarchy and at which level do you want to consolidate to.
WIP GL Account. - GL Account for WIP integration. This is the CR (Adjustment to Revenue). It will pick up the rest of the string from the Jobs' Profit Centre. The Balance Sheet DR will come as a full string from the Financial Company WorkInProgress DR.
Percent Complete. - This is no longer used in the current version of Workbench. It is retained as some clients still use an old version of the WIP process (prior 2012)
Profit Retention Percent. - The % of recognised profit from the WIP calculation that is retained further reducing recognised profit.
Threshold Revenue Percent - The % complete on a project that must be attained in the WIP calculation before profit is recognised. This will be a calculation based on actual costs compared with ForecastFinalCost.

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