Work in Progress Report (WIP)

Modified on Sat, 13 Jul, 2024 at 4:38 PM

Definition of 'Work In Progress – WIP'

Work in Progress (WIP) report is a critical report that tracks the value of projects currently underway but not yet completed. This report helps in recognizing revenue and costs associated with ongoing projects and assists in cash flow management. It's essential for maintaining an accurate picture of the company's financial health and reporting to stakeholders.

Work in progress (WIP) refers to all materials and partly finished products at various stages of the production process. WIP excludes raw materials inventory at the start of the production cycle and finished product inventory at the end. The value of the WIP is reduced as invoices are raised against the project. Eventually, when a project has been completely invoiced, the value of the WIP will be zero.

WIP Date: Select the WIP Date; any transactions after this date will be excluded from the WIP calculations.

Sections of Report

Projects

The WIP report includes the following project columns:

Field	Description
Project Number
Proposal Number
Title
Sales Price	The amount the customer is paying
Invoiced	The value of all invoices with a sent date before the WIP date.
Remaining Sales	[Total Sales Line] – [Total Invoiced]

Project Totals

Field	Description
Total Project Budget	The total estimated cost (excluding all mark-ups) (taken from the proposal)
Total Cost To-Date	[Procurement Ordered] + [Labour Cost]
Total Incurred Cost To-Date	[Procurement Invoiced] +[Material from Stock] + [Total Labour Cost To-Date]
Total Remaining Cost	[Estimated Procurement to Complete] + [Remaining Labour Cost]
Total Projected Cost	The total estimated final cost for the project
Projected Project P&L	[Total Sales Line] – [Total Projected Cost]
Projected Gross Profit Margin	[Projected Project P&L] ÷ [Sales Price]
Project Gross Profit (loss ignored)	Same as [Project P&L], except if [Project P&L] is less than zero, then [Profit] will return zero
Overall Percentage Complete	[Total Incurred Cost To-Date] / [Total Projected Cost]
Revenue Earned To-Date	[Sales Price] x [Overall Percentage Complete]
Profit to Take based on Labour Complete	[Projected Profit (loss ignored)] x [% Labour Cost Complete]
Profit to Take based on % Complete	[Projected Profit (loss ignored)] x [Overall Percentage Complete]
Work In Progress Value	([Sales Price] x [Overall Percentage Complete]) - [Invoiced]

Procurement

The procurement section is designed to capture all costs on a project that are not direct labour. Therefore, it consists of purchased materials, stock, expenses, reimbursements, and external subcontractors.

Field	Description
Procurement Income	The total income from material, expenses & subcontractors (taken from the proposal)
Procurement Budget	The total estimated material, expenses & subcontractors cost (taken from the proposal)
Procurement Ordered	The total value of procurement to date.
Procurement Received	The total cost of each purchase line item found on GRN notes for a project (does not include units rejected) plus the value of any stock assigned to the project.
Estimated Procurement to Complete	The manual estimation of the remaining procurement is normally the Procurement Budget - Procurement Ordered. However, these figures can be adjusted in the project details view.
Procurement Invoiced	The total value of invoices (taken from the line items on purchase invoices) plus the value of any stock assigned to the project
Procurement Not Invoiced	([Procurement Received] + [Stock Parts]) – [Procurement Invoiced]
Estimated Procurement Not Invoiced	[Procurement Ordered] + [Estimated Procurement to Complete] -[Invoiced Procurement]
Projected Total Procurement	[Procurement Ordered] + [Estimated Procurement to Complete] (i.e. the estimated final procurement total or the actual if procurement is completed)
% Procurement Complete	[Invoiced Procurement] ÷ [Procurement Projected]
Procurement P&L	[Procurement Income] - [Procurement Projected]

Materials

Field	Description
Material Income	The total sales from the material (taken from the proposal)
Materials Budget	The total estimated material cost (taken from the proposal)
Materials Ordered	The total value of purchase orders sent plus the value of any stock assigned to the BoM or directly to the project
Materials Received	The total cost of each purchase line item found on GRN notes for a project (does not include units rejected) plus the value of any stock assigned to the BoM or directly to the project.
Materials Invoiced	The total value of purchase invoices for materials (taken from the line items on purchase invoices) plus the value of any stock assigned to the BoM or project
Materials Not Invoiced	[Materials Received] – [Material Invoiced]
Estimated Material to Complete	[Materials Budget] + [Material Budget Adjustment] - [Materials Ordered]
Estimated Material Not Invoiced	[Materials Ordered] + [Estimated Material to Complete] -[Material Invoiced]
Material Projected	[Material Ordered] + [Estimated Material to Complete]
% Materials	[Material Invoiced] ÷ ([Materials Ordered] + [Estimated Material to Complete] + [Stock Parts])
Material P&L	[Material Income] - [Material Projected]

Expenses

Field	Description
Expenses Income	The total income from the expenses (taken from the proposal)
Expenses Budget	The total estimated expenses cost (taken from the proposal)
Expenses Ordered	The total value of purchase orders sent plus the value of any reimbursements assigned to the project
Expenses Received	The total cost of each expense purchase line item found on GRN notes for a project, plus the value of any reimbursements assigned to the project
Invoiced Expenses	The total value of invoices for expenses (taken from the line items on purchase invoices) plus the value of any reimbursements assigned to the project
Expenses Not Invoiced	([Expenses Received] + [Reimbursements]) – [Invoiced Expenses]
Estimated Expenses Not Invoiced	[Expenses Ordered] + [Estimated Expenses to Complete] -[Invoiced Expenses]
Estimated Expenses to Complete	Semi-automatic estimation of expenses yet to be incurred
Expenses Projected	[Expenses Ordered] + [Estimated Expenses to Complete]
% Expenses Complete	[Invoiced Expenses] ÷ ([Expenses Ordered] + [Estimated Expenses to Complete])

Subcontractor

Field	Description
Subcontractor Income	The total income from subcontractors (taken from the proposal)
Subcontractor Budget	The total estimated subcontractor cost (taken from the proposal)
Subcontractor Ordered	The total value of subcontractor purchase orders sent
Subcontractor Received	The total cost of each subcontractor purchase line item found on GRN notes for a project.
Invoiced Subcontractor	The total value of invoices for subcontractor (taken from the line items on purchase invoices)
Subcontractor Not Invoiced	[Subcontractor Received] – [Invoiced Subcontractor]
Estimated Subcontractor Not Invoiced	[Subcontractor Ordered] + [Estimated Subcontractor to Complete] -[Invoiced Subcontractor]
Estimated Subcontractor to Complete	Semi-automatic estimation of Subcontractor costs still to be ordered
% Subcontractor Complete	[Invoiced Subcontractor] ÷ ([Subcontractor Ordered] + [Estimated Subcontractor to Complete])

Labour Hours

Field	Description
Allocated Labour Hours	The total estimated project hours (usually taken from the proposal)
Total Labour (Normal Time)	The total normal time hours recorded against the project before the WIP date
Total Labour (Overtime)	The total overtime hours recorded against the project before the WIP date
Total Labour	The total hours recorded against the project before the WIP date
Labour Remaining	Manual estimation of remaining labour (this figure is totalled from each process within the project)
Labour Hours Projected	[Total Labour] + [Labour Remaining]
Labour Performance	Allocated Labour – Labour Hours Projected
% Labour	[Total Labour] ÷ [Labour Hours Projected]

Labour Costs

Field	Description
Labour Income	The total amount for labour quoted to the customer (taken from the proposal)
Labour Budget	[Internal Rate Per Hour] x [Allocated Labour] (this figure is totalled from each process within the proposal)
Total Labour Cost To-Date	This figure includes all wages, employer contributions, and the hourly overhead rate.
Total Labour Overhead to-Date	This figure includes all of the labour departmental overhead
Total Wages To-Date	This figure includes all wages, including any employer contributions, but excludes overheads
Estimated Remaining Labour Cost	[Labour Remaining] x [Internal Rate Per Hour]
Total Projected Labour Cost	[Total Labour Cost To-Date] + [Estimated Remaining Labour Cost]
Labour P&L	[Labour Income] - [Total Projected Labour Cost]
Labour Profit Margin	[Total Projected Labour Cost] ÷ [Labour Income]
% Labour Cost Complete	[Total Labour Cost To-Date] ÷ [Total Projected Labour Cost]

Profit Loss

WIP: (∑S x %T) – ∑I (130,000 x 55%) – 70,000 1,500

Entity	Explanation	Calculation	Result
∑S	Total Sales Price		130,000
∑I	Total Invoiced		70,000
∑P	Procurement Ordered + Procurement Still to Order	15,000 + 5,000	20,000
*P	Procurement Invoiced (Procurement Completed)		15,000
%P	*P / ∑P (Percent of Procurement Completed)	15,000 / 20,000	75%
∑L	Labour to Date + Labour Remaining	40,000 + 40,000	80,000
*L	Labour to Date (Labour Completed)		40,000
%L	*L / ∑L (Percent of Labour Completed)	40,000 / 80,000	50%
PR	∑P / (∑P + ∑L): Procurement Ratio of Total Costs	20,000 / (20,000 + 80,000)	20%
LR	∑L / (∑P + ∑L): Labour Ratio of Total Costs	80,000 / (20,000 + 80,000)	80%
%T	(%P x PR) + (%L x LR): Total % Complete	(75% x 20%) + (50% x 80%)	55%

Revenue Recognition

Revenue recognition is a critical element in accounting that identifies the specific conditions under which income becomes realized as revenue. Essentially, it answers "when" and "how much" revenue should be recognised on a company's financial statements.

The timing of recognition can be more complicated for long-running projects than short projects completed within days or weeks.

Point in Time (Short Projects): If control of goods or services is transferred at a specific moment (e.g., delivering a product), revenue is recognized at that point in time.

Over Time (Long Projects): Revenue is recognised over time for contracts fulfilled over a long period, often using the percentage-of-completion method.

Percentage-of-Completion Method

The percentage-of-completion method is an accounting technique used primarily for long-term projects. Under this method, revenue, expenses, and profit are recognized periodically based on the degree of completion of the project rather than waiting until the project is fully completed. This allows for a more accurate representation of a company's financial position in long-term projects. The basic idea is to recognise revenue and expenses in proportion to the amount of the project completed during the accounting period. The degree of completion is usually determined using one of the following methods:

Cost-to-Cost Method

This is the most commonly used approach. The percentage of completion is calculated by dividing the costs incurred to date by the total estimated costs of the contract.

Percentage of Completion = Costs Incurred to Date / Total Estimated Costs × 100

Efforts Expended Method

This could be based on labour hours used to measure progress instead of costs; physical inspections or engineering assessments often measure the total work completed.

Accounting Treatment

Once the percentage of completion is determined, the following financial recognition is carried out:

Revenue

Revenue to be recognized for the period is calculated by multiplying the total contract value by the completion percentage.

Revenue to be Recognized = Total Sales Value × Percentage of Completion

Cost

Costs directly attributable to the contract are also recognized based on the completion percentage.

Profit

The difference between the recognized revenue and the recognized costs gives the gross profit recognised for the accounting period.

Audit Warning

Using the percentage-of-completion method involves a significant amount of judgment and estimation, and it's crucial to have strong internal controls and documentation to support the figures used.