The Work in Process feature of EBMS is used to create monthly general ledger adjustments to compensate for the billing vs. cost relationship differences. For example, if the user incurred $ 70,000 of costs for a job and only billed the customer $ 28,000 of it to the job, the P&L statement would show a loss. The work-in-process procedure creates a monthly adjustment to correct this problem. The work-in-process adjustment is needed only if a job is started in one month and completed within another. The work in process adjustment can be calculated in two separate ways: the Percent Complete Method or the Job Complete method. Contact an accountant or an EBMS consultant for advice on the appropriate setting.
Go to the Job Costing > Options > General tab and select the desired Work in Process option.
Disable Work in Process
Select the Do not calculate work in process option to disable all work in process functions as well as hide the Work in Process selection from the Job Costing menu.
Use the Percentage Complete Method
Select this option if the profits should be distributed throughout the duration of the job. This method will only affect the contract jobs that have billing and cost budget amounts entered into the job. T&M jobs will always be calculated using the Job Complete method because no budget amounts are available.
The percent complete method will create general ledger transactions and show a percentage of the profits within each month. For example, if a job is 50% complete and it has a budgeted cost of $100,000 and a budgeted income of $140,000, the P&L (income statement) report should reflect 50% of the profit.
$ 28,000 Billings - $ 70,000 Costs = Loss of $ 42,000.
Since the ledger may include 70% of the costs ($ 70,000) and only 20% of the billings ($ 28,000), an adjustment must be made for the margin to reflect 50% of the job. The problem in this situation is not a loss in the current job but the user has not invoiced the same percentage of the billings in comparison to the costs that have been incurred.
Total Costs = Actual Costs + any Actual Overhead.
See the Overhead section for details on setting overhead costs.
50% percent of the profit would equal $ 20,000, requiring a revenue adjustment of $ 62,000.
$ 70,000 (50% of billings) - $ 50,000 (50% of costs) = $ 20,000 (50% of profit)
The amount of the adjustment will debit the Cost in Excess Billings G/L account and credit the Work in Process G/L account found within the Advanced tab of a job.
If the billings were greater than the costs of the job, the adjustment would need to decrease the revenue amount. This process would credit the Billings in excess of cost G/L account and debit the Work in process G/L account.
Use the Job Complete Method
With this option selected, the system will make an adjustment so the total costs (actual & overhead) equal the total billings. This will cause the profit of a job to equal zero until the job is completed, causing all profits to appear in the month that the job was closed. This method does not require that the job contains budget amounts.
If the job costs and overhead costs equal $ 70,000 and the billings equal $ 28,000 the adjustment would equal $ 42,000.
$ 28,000 Billings + $ 42,000 Adjustment = $ 70,000 Costs
The total reflects the actual cost and overhead total. The percent complete percentage does not affect the equation if the Work in Process Method is set to Job Compete.
The work in process procedure will debit the Cost in Excess of Billings G/L account and credit the Work in Process G/L account the amount of the adjustment (costs – billings). If the total billing amount is greater than the costs the procedure will credit the Billings in Excess of Cost G/L account and debit the Work in Process G/L account (billings – costs).