Understanding WIP Methods
As a Project progresses, materials, resources, and other expenses are consumed and must be posted to the Project. Work in Process (WIP) is a feature that enables you to estimate the financial value of Project in the General Ledger while the Projects are ongoing. The WIP process is designed to generate records to an Unbilled Receivables or a WIP account and is typically run on a minimum of a monthly basis.
In many cases, you might post expenses for a Project before invoicing a project. When only expenses have been posted, your financial statement will be inaccurate. WIP is a term used in project accounting to refer to billable time and expenses that have not yet been billed on a client invoice. It is work that is already completed, or expenses incurred, but it is in the process of being billed. A goal of good accounting practices is to match revenue with any associated expense (or cost) in the same accounting period.
Once you have set up the various components of WIP, for more information on how to calculate WIP, see: Monitor Project Progress and Performance
Components of WIP
To process WIP, there are 4 primary components to establish:
Contract amount: (can be set up on the Project Card > Invoicing FastTab, in Scheduled Billings: by using the total of the Price of the payments scheduled, or from Budget entries on the Project.
Percent complete: manually entered for Fixed Price Projects in WIP % (FP) (found in the Fixed Price section of the Project Card > WIP Calculation FastTab)
How much has already been billed.
Note
All calculation\postings of WIP for Fixed Price Contracts rely on the manual entry of the WIP % to generate the calculation.
Setting up WIP Accounts
To track the value in the General Ledger, you can calculate WIP and post the value to the General Ledger Account.
To set up WIP, you must configure the Accounts used in the transactions.
Postings
WIP calculation and postings only address the Revenue postings.
Expenses are posted as incurred as follows:
General Ledger is updated for costs in three scenarios:
when you enter Expenses in a Purchase Invoice.
when you enter Expenses in a G/L Journal.
when you enter and post Time and Expense entries to the Project.
Project Setup > Invoicing FastTab > Gen. Prod. Posting Group - the Posting Group specified here is used for the debit or sales side of the WIP transaction.
Open General Product Posting Group, select Setup on the Posting Group used in Project Setup, then scroll right to view the four Accounts used in WIP calculation, depending on which type of WIP transaction you are creating (Resource, Item, or Expense):
- WIP Fixed Account - Resource (used with Timesheets).
- WIP Fixed Account - Item (used with Inventory Items).
- WIP Fixed Account - Expense (used with Expense Sheets).
- WIP Fixed Account - (used with Expense Sheet or Purchase Invoice to a GL Account).
Tip
It is not a requirement to use different Accounts for these four WIP categories, but by specifying different Account Numbers for the fields in the General Posting Setup, you can set up different WIP Accounts for each type of Expense, thus providing segregation of your WIP Account by Type.
For the credit side of the WIP transaction, in the General Posting Setup, the General Business Posting Group value determines the Accounts used for the credit side of the WIP transaction. The value in the General Business Posting Group defaults in from the Customer Card for the Customer used on the WIP transaction. This is found in Customer Card > Invoicing FastTab > General Business Posting Group. The WIP transaction will use the Posting Group found here for the credit side of the WIP transaction.
In Project Posting Groups the fields that pertain to the credit side of a WIP transaction are:
- Capitalization Recognition Usage Item
- Capitalization Recognition Sales Item
- Capitalization Recognition Usage Expense
- Capitalization Recognition Sales Expense
- Capitalization Recognition Usage Resource
- Capitalization Recognition Sales Resource
The Account that is used is determined by the type of transaction (Resource, Item, or Expense).
Configuring the Project Card for WIP
Use WIP setup options on the Project Card to support a mixed Fixed Price/Time & Materials Projects.
You can set up a project as Time & Material or Fixed Price. The three fast tabs related to WIP in the Project Card are:
WIP, Recognition Settings & Allocations - contains the settings for how WIP is calculated on the Project (i.e., which factors to base the WIP Calculation on, which factors to exclude).
WIP Calculation - For Fixed Price Project, allows you to manually set the WIP %, or for Time & Material Projects, the BC % field (Budgeted Completion %) displays the WIP % as calculated by the system.
WIP Postings - fields in the WIP Posting FastTab display the results from running the Calc. WIP process. You can click on the numbers and open and view the Posted or To Post Project WIP Entries page.
WIP and Recognition Settings
The WIP and Recognition Settings FastTab is where the settings for T&M and Fixed Price Projects are configured.
Time & Material
Revenue Recognition Method: Specifies the revenue recognition method for Time and Material Contract Types. The value selected in the Revenue Recognition Method for Time & Material defaults the settings for the Value Type and the Entry Type Filter.
None:
- Value Type: 'None'
- Entry Type Filter: 'Usage and Sales - open entries'
When Performed:
- Value Type: 'Sales Value'
- Entry Type Filter: 'Usage and Sales - open entries'
When Billed:
- Value Type: 'Cost Value'
- Entry Type Filter: 'Usage and Sales - open entries'
Direct Invoice:
- Value Type: 'None'
- Entry Type Filter: 'Usage entries'
User-Defined
- Value Type: 'None'
- Entry Type Filter: 'Usage and Sales - open entries'
Use Advanced WIP if different WIP settings are required for the different Entry Types (Resource, Item, and Expense). With Advanced WIP enabled, the option values differ from the values available when Advanced WIP is disabled. If all three usage types should be treated the same, then leave the Advanced WIP disabled.
Tip
Functionality related to the Entry Type Filter in the Non-Advanced WIP section is equivalent to the field WIP Usage/Budget Res. In the Advanced WIP section. Both are meant for defining the base for the WIP Calculation.
Fields that Display when Advanced WIP is Disabled
Field Name | Description |
---|---|
Value Type | Specifies the value on which the WIP Calculation should be based. Cost Value will use the Cost Amount from Project Ledger Entries and Sales Value will use the Sales Amount from the entries. |
Entry Type Filter (Res) | Specifies the Project Ledger Entry Type(s) for Resources to include in the WIP calculation. Options include: |
Usage entries: As Resources, Items and Expenses are incurred the system creates journal transactions that are USAGE (cost) Type. Choose this option if you want only USAGE entries to be included in the WIP Calculation. | |
Sales entries: As Resources, Items and Expenses are billed the system creates journal transactions that are SALES Type. Choose this option if you want only SALES entries to be included in the WIP Calculation. | |
Usage and Sales Entries: Choose this option if you want WIP to use both Usage and Sales entries. |
You can select which categories to exclude from WIP Calculation by selecting these fields:
- Excl. Resources
- Excl. Expenses
- Excl. Items
Use the Include Non-Chargeable field to include non-chargeable entries in WIP Calculations.
Fields that display with Advanced WIP Enabled include
Field Name | Description |
---|---|
Value Type (Res.) | Specifies the Resources value that WIP Calculation should be based on. Cost Amount from Project Ledger Entries and Sales Value will use the Sales Amount from the entries |
Entry Type (Res.) | Specifies the Project Ledger Entry Type(s) for Resources that will be included in the WIP Calculation. Options include: |
- Usage Entries: WIP Calculation only includes Project Ledger Entries of Type= Usage. This will base WIP Calculation off costs. | |
Sales entries: WIP Calculation only includes Project Ledger Entries of Type = Sales. This will base WIP Calculation off what you expect to invoice the Customer. | |
Usage and Sales Entries: WIP Amount is calculated on both Usage and Sales Amounts. Most often Usage and Sales is chosen because the WIP Calculation should factor in what has been expensed and billed.. | |
- Budget Entries: WIP Calculation only includes Budget entries contained in the Active Budget. This option is only available when Advanced WIP is enabled. | |
Value Type (Exp) | Specifies the Expenses value on which WIP Calculation should be based. |
Cost Value will use the Cost Amount from Project Ledger Entries. | |
Sales Value will use the Sales Amount from the entries. | |
Entry Type (Exp.) | Species the Project Ledger Entry Type(s) for expenses that will be included in the WIP Calculation. Options include: |
- Usage Entries: WIP Calculation only includes Project Ledger entries of type = Usage. This will base WIP Calculation off costs. | |
- Sales Entries: WIP Calculation only include Project Ledger entries of type = Sales. This will base WIP Calculation off what you expect to invoice the customer. | |
- Usage and Sales: WIP Amount is calculated on both usage and sales amounts. Most often Usage and Sales is chosen because the WIP Calculation should factor in what has been expensed and billed. | |
- Budget Entries: WIP Calculation only includes Budget Entries contained in the Active Budget. This option is only available when Advanced WIP is enabled. | |
Entry Type (Item) | Same options available as for WIP Entry Type (Res.) |
Value Type (Item) | Specifies the Item value that WIP Calculation should be based on. Cost Value will use the Cost Amount from Project Ledger Entries and Sales Value will use the Sales Amount from the entries. |
Entry Type (Item) | Species the Project Ledger Entry Type(s) for Items that will be included in the WIP Calculation. Options include: |
- Usage Entries: WIP Calculation only includes Project Ledger entries of type = Usage. This will base WIP Calculation off costs. | |
- Sales Entries: WIP Calculation only include Project Ledger Entries of Type = Sales. This will base WIP Calculation off what you expect to invoice the customer. | |
- Usage and Sales: WIP Amount is calculated on both usage and sales amounts. Most often Usage and Sales* is chosen because the WIP Calculation should factor in what has been expensed and billed. | |
- Budget Entries: WIP Calculation only includes Budget entries contained in the Active Budget. This option is only available when Advanced WIP is enabled. |
Fixed
For Fixed Price projects, settings include:
Field Name | Description |
---|---|
Cost Type | select which Cost Type to include as a basis for WIP Calculation posting on a Fixed Price project. Typically, a "WIP" cost type is used here. |
Use Contract Amount | Only used if the Project Usage Postings is set to Cost. Select this checkbox if you need WIP to be limited to your Payments that are setup. The Contract Amount used is the amount set up for this task in Scheduled Billings. |
WIP Split Type | Specifies how WIP on Fixed Price Task is split. |
- None = no splitting. | |
- G/L-Posting = a G/L entry is created for each usage entry. | |
WIP Split Key | Specifies the measure to use weigh amounts, when splitting WIP on Fixed Price Tasks. |
WIP and Revenue Recognition Method | Specifies the revenue recognition method for Fixed Contract Types. Options include: |
- None: No WIP will be calculated when using the Calculate WIP process. Value and Entry Filter does not apply for this scenario. | |
- % Complete: WIP will be calculated when using the Calculate WIP process. User can choose Budget Cost or Schd. Billing Price for Value Entry Filter. | |
- Direct Invoice: No WIP will be calculated when using the Calculate WIP process. Value and Entry Filter does not apply for this scenario. | |
Use Value & Entry Filter | Specifies the base for the WIP Calculation for Task lines of Contract Type = *Fixed. Options include: |
- None: No WIP will be calculated when using the Calculate WIP process. user can choose Budget Cost or Schd. Billing Price for Value Entry Filter. | |
- Budget Cost: If you select Budget Cost, the amount in Total Budget Cost (LCY) is used to calculate the WIP Amount. | |
- Scheduled Billing Price: If you select Scheduled Billing Price, the value in Scheduled Billings Budget - Price is used to calculate the WIP Amount. The Scheduled Billings Budget - Price Amount is created by entering Payments in the Scheduled Billings page. | |
- Fixed Price: Use full Contract Value for Basis: Specifies if this Boolean is true, system will not consider Calculate WIP Until Date for cut off for calculation of Contract Value (Scheduled Billings entry or Budget Cost) for Percent Complete. If this Boolean is false, the system uses the Calculate WIP until Date in the calculation of Percent Complete for the Contract Value (Scheduled Billings entry or Budget Cost) for Percent Complete. |