Selecting a Work in Process
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 can be calculated
in three ways: the Percent
Complete Method, Job
Complete, or Manufacturing
method. The Job
Complete and Manufacturing
methods create similar transactions. Contact an accountant
or an EBMS consultant for advice on the appropriate setting. The work-in-process
adjustments will not appear until the process launched by selecting
option
is completed. Go to Processing
Work in Process section for more details on the process.
EBMS allows the Work
in Process method settings to vary based
on job. The most common situation is to configure all the jobs with the
same method. Complete the following steps to set the default job within
a company:
Go to and click on the
Job
Folders tab
Highlight the root folder labeled Jobs
and click on the Edit
Defaults button
Click on the Advanced tab.
Configure the following WIP general ledger accounts:
Customer retainage G/L:
Create or select an asset account that is classified
as Customer Retainage.
Cost in excess of billing
G/L: Create or select an asset account that is classified as Job
Cost in Excess.
Billing in excess of cost
G/L: Create or select a liability account that is
classified as Job Billing in Excess.
Work in process variance G/L:
Create or select an expense account in the cost of goods
folder that is classified
as Work in Process Variance.
Review Chart of Accounts
> Adding General Ledger Accounts for instructions to create
these G/L financial accounts.
Click on the Change Method
button and select one of the following options:
Click OK
to change the default Work in Process setting for
new jobs. Note that this process will not change existing jobs. The
Work
in Process setting must be set individually
within each existing job. Review the following options to determine
the best Work
in Process option.
Disable
work in process
Select the Disable
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 Percentage Complete Method
Select the Use percentage
complete method 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.
Review the Job Overhead > The Overhead Stage 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
Job Complete Method
With the Use Job Complete
Method 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 completed. 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 Complete.
Use
Manufacturing method
With the Use Manufacturing
Method option selected, the system will make
an adjustment in work in process to off-set costs (actual & overhead)
within the income statement. This will cause any costs posted to this
job to be off-set by the variance so that job costs do not affect the
profits until the job is completed, causing any profit margins to appear
in the month that the job was competed. This method does not require that
the job contains budget amounts.
If the job costs and overhead costs equal $ 70,000
the adjustment would equal the same amount.
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).
Review the Processing a Work in Process section
for transaction details and equations.