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Project WIP - Best Practice

  • 7 August 2023
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K
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Hi

I am looking at implementing Project WIP for the first time and would like to draw on the experience of others. This is just using Projects in the Enterprise Edition and not the Construction Edition.

I have worked through the allocations process to transfer costs to the WIP account. This looks like it will create a lot of additional transactions - credit every cost and then re-debit it on release of AR Invoice. Is it best to have the allocations created for every transaction or periodically to reduce the transaction volumes (eg on a daily basis)?

I don’t see any standard WIP reports in the Project reports. Are there any available to assist with reconciliation of Project WIP to the Balance Sheet accounts?

Any other suggestions or advice to have the WIP process flow efficiently and well for users?

 

Thanks
Kevin Long

 

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Best answer by kgartly83 8 June 2024, 03:22

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kgartly83
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Kevin, did you manage to find a solution?  Like you, I have clients that would prefer that costs for fixed price project hit the WP accounts on the balance sheet first and then when the invoice is released, have the costs moved automatically from the WIP accounts on the balance sheet to the COGS accounts on the income statement.

Like you, I have been able to configure the system to auto-allocate the expense to WIP and then back to COGS when the project invoice is released, but it does create more “noise” and there are some scenarios that can prevent all the WIP being auto-reversed properly.

 

aaghaei
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If I am to put my accounting hat on, I would say we typically have two types of projects.

  1. The projects we are capitalizing on and later are converted to an asset either for internal use or sales. A very common example is development companies who start building a building that may take years to complete and then either rent or sell the project or units … In this case typically spending on projects are capitalized to the WIP asset account(s).
  2. The projects we are working on it to bill out either by percentage of completion or as we go like T&M jobs. The spending on these types of projects typically are coded to the projects cost of sales account(s). In this case in order to comply with accounting matching principle we need to accrue revenue with GAAP consideration. This leads us to recognize any over/under billing and post it to the revenue WIP adjustment and accordingly to the corresponding asset or liability account.

Allocation rules to me has always been the concept of accumulating cost in the cost pools then allocating based on the cost drivers. for example we accumulate the IT cost and then allocate to departments by number of users or allocate the rental costs by occupied sqft of departments and so on.

Although I see quite a lots of people using allocation rules to go around WIP limitations, what is really missing is a WIP calculation and adjustment screen (by the way we have developed one that some clients are using it and works nicely) that reads through the all projects budgets, costs, billings, holdbacks … and drafts a WIP adjustment entry that automatically is posted to the corresponding accounts and reversed at the beginning of the next month.

The transactions driving the WIP, should be more of support for the billings not constantly debited/credited and reclassed from one account to another. As long as a true WIP process does not exists in Acumatica out of the box edition, I don’t really think is going to be a best practice.

Reza Aghaei CPA, M. Acc. & Acumatica Customization - If a member helped you, please *Like* their post. If a member provided an answer to your question, please mark it as *Best Answer*.
kgartly83
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Reza, a great summary of needs.  In my case, their needs are more basic, they do not bill until the project is complete and do not want to recognize any revenue or costs related to a project until that time.

There are many smaller clients (or larger clients with very basic project needs) that just want to use projects as a cost bucket, with values on the balance sheet, until the project is complete, but who also want to monitor WIP at the GL level throughout the month instead of only adjusting the GL at the end of the month, whether manually or automatically.  Their projects may span over a month or two, or across a fiscal year.

aaghaei
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I totally understand. Then I’m guessing for this type of clients what you already are doing is the best possible practice. 

Reza Aghaei CPA, M. Acc. & Acumatica Customization - If a member helped you, please *Like* their post. If a member provided an answer to your question, please mark it as *Best Answer*.

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