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Cost-based Work in Progress FAQs |
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Summary: Answers to frequently-asked questions about tracking cost-based work in progress in Clients & Profits. Clients & Profits tracks work in progress two ways: by task or by cost. WIP accounting is used to properly account for costs and billings on financial statements, such as the Income Statement. The idea is to match costs and billings that occur during the same month as accurately as possible, even though a job's costs might be entered months before they are billed. The WIP capabilities in Clients & Profits try to automate the cost/billing reconciliation as much as possible. The FAQ discusses some issues regarding WIP accounting in Clients & Profits. NOTE: The WIP Accounting FAQs has more general information about tracking work in progress. Q. What's the difference between cost-based WIP and task-based WIP? Clients & Profits Pro tracks work in progress two ways: by task or by cost. Task-based WIP tracks unbilled costs by job task, instead of tracking each individual unbilled job cost. Task-based work in progress accounting is the standard setting in Clients & Profits, and works behind-the-scenes while you work to automatically account for job costs and billings on financial statements. From a user's point-of-view, there's nothing extra to do to track WIP by task -- Clients & Profits Pro does everything for you. Task-based WIP accounting is less exact, since it doesn't specifically match costs with billings on a cost-by-cost basis. Instead, it simply posts costs and billings to the Income Statement when they are posted, based on the accounting period. On financial statements, it is represented by the formula, gross costs minus billings equals unbilled. As an end-user, you need do nothing to track WIP by task. Clients & Profits does it all for you. Tracking WIP by cost is the more detailed way of tracking WIP (as opposed to tracking it by task.) However, there are a number of things you MUST do if you want to make this process easier, not have to do too much work on the back end, and have all your reports agree whether they are cost- or task-based.  Q. Do different types of A/R invoices affect cost-based WIP? Yes. Only job billings affect cost-based WIP. Retainer billings, advances, and miscellaneous billings don't involve job costs, so don't affect WIP. Media billings are a special case (see below). Q. How do media billings after WIP? Media billings are specially designed along with insertion orders and media payables to automate media accruals in the General Ledger. Since media billings aren't based on job costs, they don't affect WIP in the conventional way. If media is billed based on actual costs from a job ticket on on job billing invoice, then the media accruals aren't affected. In this case, WIP is handled like any other job cost. Q. How do prebilled costs, like purchase and insertion orders, affect WIP? If you do ANY kind of prebilling (i.e., estimate billing, prebilling POs, etc.), you will need to verify/recover the job's costs billing status after there are actual hard costs representing the prebilling on the job ticket. Or, at the very least, run it before the job is closed to update the billing statuses of those costs that were not in place when the A/R invoice that "billed" them was created. Q. Does editing an A/R invoice that actually bills hard costs affect cost-based WIP? Yes, if you ever edit an A/R invoice, i.e., job billing, progress/final billing, multi-job billing, and change the cost amounts that are pulled to it, then you MUST also edit the invoice's billing worksheet. The process is: after editing the amounts billed, you then go to the A/R invoice's billing worksheet. Here is where all the costs are that were originally pulled to the invoice. In the billing worksheet, you need to edit the costs to match how you have edited the invoice's amounts. (The billing worksheet is not available in Clients & Profits Classic 3.x. In Clients & Profits Classic 3.x, go to the job ticket's WIP window to edit the cost billing status.) Q. What is the Billing Worksheet on an A/R invoice used for? The Billing Worksheet lets you review the costs that were billed on a particular invoice. For each billing amount you'll see the individual costs that were billed, including partial billing amounts. Each cost remembers the invoice on which it was billed, which is key to tracking WIP. Billing amounts on these costs can be manually adjusted, if needed, on the Billing Worksheet window before the invoice is posted. Q. How do I edit the A/R invoice's Billing Worksheet? If the invoice isn't posted, its billing amounts can be edited by clicking on the Worksheet button. The Billing Worksheet opens, listing the job costs billed on this invoice. Here you will remove the amounts from the "bill now" column and the hours from the "hours" column for any individual costs that aren't going to be billed now. For those costs, edit the cost status back to "unbilled" then save your changes. Be sure to proof the invoice before it is posted, because the costs' billing information can't be changed after the invoice is posted. Q. What happens to the costs I just edited in the Billing Worksheet? The costs that you did not bill and edited on the Billing Worksheet are unbilled, and will appear as unbilled costs on job reports. They are also removed from the Billing Worksheet the next time the window is opened, since they weren't billed on this invoice. Q. Do I really have to do the steps above to track WIP by cost? Yes. These steps are essential if you desire to track WIP by cost, and either prebill or edit amounts on A/R invoices. However, if you do not follow the steps outlined above to correct the costs as you go, use verify/recover job's cost billing status utility (either from Setup > Utilities or from the job ticket's WIP window). It updates cost billing status automatically based on the job's billing amounts for each job cost on a first-in, first-billed basis. Q. What does verify/recover job's cost billing status do? It will take all the actual costs on a job ticket, and starting with the oldest cost first, apply the amounts billed. So if a cost transaction is covered by a billed amount, the cost's billing status will automatically be changed to Billed. The verify/recover utility will work through all costs and billings for a job ticket to determine which costs were actually billed and which ones weren't. Q. Where do I find verify/recover job's cost billing status? It can be run from the job's WIP window or from the Verify/Recover utility (choose Setup > Utilities > Verify/Recover). From the job's WIP window, click on the Verify button (the button with the green checkmark). The procedure usually takes less than a minute. If you use the Verify/Recover utility, it'll prompt you to enter the job number. Q. Can I run verify/recover job's cost billing status for all jobs at one time? No. The verify/recover job cost billing status runs for one job at a time. Q. What about the verify/recover costs and billings? Isn't that run on the entire database? Yes, but is doesn't verify the job's cost billing status. The verify job billings utility only compares the job's total billings against its A/R invoices. Q. Cost-based WIP seems very labor intensive. Is it worth it? Yes, but only if you need a more exact unbilled cost total on your financial statements. Using the standard task-based with is easier and especially accurate if your shop tends to bill costs in the same month they're entered. If your shop typically spends money on client jobs but doesn't bill until months later, the task-based WIP will be less accurate (since costs and their billings wouldn't be matched up together in the same period). Whether or not it's very labor intensive is up to you. If your shop requires cost-based WIP, the first thing you can do is always bill everything that's currently unbilled. If you can do that, you won't have much to do to make cost-based WIP correct. Also, keep to a minimum the editing of A/R invoice amounts. Secondly, if your shop requires cost-based WIP, instead of creating estimate invoices or prebilling POs, BOs, and IOs, consider using retainer and/or advance billings. These types of invoices are later applied to actual cost invoices, which automatically update cost-based WIP. And remember, if you're taking care of cost-based WIP throughout the month as they happen, you'll save yourself a lot of month-end work to correctly reflect which costs have been billed.
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