Understanding WIP Methods

Financials supports the following methods of calculating and recording the value of work in process.

WIP Method Calculation Formula Calculation Description
Cost Value Recognized Revenue = Billable Invoiced Price

Estimated Total Costs = Billable Total Price x Budget Cost Ratio

WIP Costs = (Percentage of Completion - Invoiced %) x Estimated Total Costs

Percentage of Completion = Usage Total Costs / Budget Total Costs
Invoiced % = Billable Invoiced Price

Billable Total Price Recognized Costs = Usage Total Costs - WIP
Cost value calculations start by calculating the value of what has been provided by taking a proportion of the estimated total costs based on percentage of completion. Invoiced costs are subtracted by taking a proportion of the estimated total costs based on the invoiced percentage.

This calculation requires that the billable total price, budget total price, and budget total costs be correctly entered for the whole job.
Cost of Sales Recognized Revenue = Billable Invoiced Price

Recognized Costs = Budget Total Cost x Invoiced Percentage

Invoiced % = Billable Invoiced Price / Billable Total Price

(Invoiced % exists as column on job task lines)

WIP Costs = Usage Total Costs – Recognized Costs
Cost of sales calculations begin by calculating the recognized costs. Costs are recognized proportionally based on budget total costs.

This calculation requires that the billable total price and budget total costs be correctly entered for the whole job.
Sales Value Recognized Costs = Usage Total Costs

Recognized Revenue = Usage Total Price x Expected invoicing ratio

Cost Recovery % = Billable Total Price / Budget Total Price

WIP Sales = Recognized Sales - Billable Invoiced Price
Sales value calculations recognize revenue proportionally based on usage total costs and the expected cost recovery ratio.

This calculation requires that the billable total price and budget total price be correctly entered for the whole job.
Percentage of Completion Recognized Costs = Usage Total Costs

Recognized Revenue = Billable Total Price x Percentage of Completion

Percentage of Completion = Usage Total Costs / Budget Total Costs
(Referred to as "Cost Completion %" on job task lines)

WIP Sales = Recognized Sales - Billable Invoiced Price
Percentage of completion calculations recognize revenue proportionally based on the percentage of completion, that is, usage total costs vs. budget costs.

This calculation requires that the billable total price and budget total costs be correctly entered for the whole job.
Completed Contract WIP Amount = WIP Cost Amount = Usage (Total Cost)

WIP Sales Amount = Billable (Invoiced Price)
Completed contract does not recognize revenue and costs until the job is complete. You may want to do this when there is high uncertainty around the estimates of costs and revenue for the job.

All usage is posted to the WIP Costs account (asset) and all invoiced sales are posted to the WIP Invoiced Sales account (liability) until the job is complete.

See Also

Project Management
Finance
Purchasing
Sales
Working with Financials