- Original Poster
- #1
Hi. I'm new here and searching old posts doesn't seem to answer my questions, so here's my first post. Thanks in advance!
I'm an engineering consultant with a couple of colleagues and we have lots of small projects to keep track of. We would like to move from cash accounting to WIP accrual (?) to help us plan future work/fees to be earned, rather than simply tracking work invoiced. We are trying to set up our own system as proprietary software doesn't suit the way we work - we've trialled many systems - and they seem to suit fewer/bigger projects.
Our fees can be on time basis, % of project cost or fixed fee. We charge our time on hourly rates to the jobs and might discount or mark up standard rates depending on the project. We think that we will calculate the following for each project (monthly & life of project) and for all projects:
Revenue = Standard Time - Provisions
WIP = Standard Time - Billings - Provisions
There are 3 different types of provision we think we need to calculate:
1. Discounting (or premium) on prices - accumulates with every hour of time recorded on the job.
2. Temporary provisions related to % complete progress of project work (updated monthly in line with the real life progress of the work)
3. Write Off (usually at the end of the project where fees can't be billed to the client for one reason or another).
Am I on the right track so far?
After this I get quite confused as I've no background in accountancy...
Firstly, for management of project accounts we need to use a "revenue" basis (figures based on standard time charge hourly rates), but I understand that accountants will probably want to report WIP as a "cost" in the accounts? Is this correct? Is there an easy way to convert our project accounting revenue figures into cost figures?
Secondly how do I calculate WIP each month without double counting when looking at the "life of project" period? Do I work out the figures for each month, then total the months? Or is it better to total each of the time, billings and provisions to then calculate a cumulative figure?
Thirdly I'm assuming that I will take "whole firm totals" from the project ledger/system and put them into the General ledger as journal entries. Opening & Closing Balances? What will the monthly journal entries look like for WIP and Provisions each month? Is it best to deal with the 3 provisions separately or lump them together? Once I start doing these entries should I credit invoices against a WIP Account, as opposed to a General Sales code?
Our accountant is familiar with WIP and provisions in the main accounts, but not project accounts so we are struggling a bit where the two systems need to meet. Any help or advice would be gratefully received.
I'm an engineering consultant with a couple of colleagues and we have lots of small projects to keep track of. We would like to move from cash accounting to WIP accrual (?) to help us plan future work/fees to be earned, rather than simply tracking work invoiced. We are trying to set up our own system as proprietary software doesn't suit the way we work - we've trialled many systems - and they seem to suit fewer/bigger projects.
Our fees can be on time basis, % of project cost or fixed fee. We charge our time on hourly rates to the jobs and might discount or mark up standard rates depending on the project. We think that we will calculate the following for each project (monthly & life of project) and for all projects:
Revenue = Standard Time - Provisions
WIP = Standard Time - Billings - Provisions
There are 3 different types of provision we think we need to calculate:
1. Discounting (or premium) on prices - accumulates with every hour of time recorded on the job.
2. Temporary provisions related to % complete progress of project work (updated monthly in line with the real life progress of the work)
3. Write Off (usually at the end of the project where fees can't be billed to the client for one reason or another).
Am I on the right track so far?
After this I get quite confused as I've no background in accountancy...
Firstly, for management of project accounts we need to use a "revenue" basis (figures based on standard time charge hourly rates), but I understand that accountants will probably want to report WIP as a "cost" in the accounts? Is this correct? Is there an easy way to convert our project accounting revenue figures into cost figures?
Secondly how do I calculate WIP each month without double counting when looking at the "life of project" period? Do I work out the figures for each month, then total the months? Or is it better to total each of the time, billings and provisions to then calculate a cumulative figure?
Thirdly I'm assuming that I will take "whole firm totals" from the project ledger/system and put them into the General ledger as journal entries. Opening & Closing Balances? What will the monthly journal entries look like for WIP and Provisions each month? Is it best to deal with the 3 provisions separately or lump them together? Once I start doing these entries should I credit invoices against a WIP Account, as opposed to a General Sales code?
Our accountant is familiar with WIP and provisions in the main accounts, but not project accounts so we are struggling a bit where the two systems need to meet. Any help or advice would be gratefully received.
