Work in Progress - tracking in SAGE

SOLVED

To properly track revenues per accounting standards, revenue should be recognized when the expense is incurred.  In other accounting systems I've used what happens is if an employee works a hour on September 1 that will cost the company $20 but will be billed out for $80, the cost of $20 and the associated revenue of $80 will be recorded in the general ledger dated September 1, resulting in matching of revenue and expense.  This is also known as recording the revenue against Work in Progress (WIP).

I can't figure out a way in SAGE to replicate this and I'm wondering if anyone has any ideas.  I can see how to record timeslips and pull these into payroll.  and from there you can control the way the dates hit the system.  The issue becomes when doing the invoicing from that same timeslip, it wants to create the journal entry in sage as of the invoice date.  This could then result in the revenue being dated (ie recognized) 2 months after the expense was recorded.

Any thoughts?

thanks,

Susan

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  • 0

    I don't use timeslips but I do record WIP however at year-end only. I take the hours from the timesheets that have not been paid as of the last day of year and enter as a general journal entry - credit to wage payable and debit to wage expenses. Then I reverse this journal in the new year using date of the 1st paychq of the year.

    For unbilled material usuage I credit a material expense account and debit a 1000 numbered account called Work-In-Progress. I then reverse this entry on the first day of the new year.

  • 0 in reply to Smith and Co

    Actually, the revenue should be recorded when it is earned, regardless of when the cost is incurred. Just because the 1 hour has been spend on a job, doesn't mean that the $80 has now been earned. More likely, another 9 hours (for example) needs to be spent before any revenue can be recorded. That is, if not another minute was spent on the job, could you actually send out a bill for $80? Probably not. Hence the purpose of WIP for labour and for materials -- to remove the cost of items that are not yet billable. From a financing standpoint, WIP is worth far less than regular inventory and certainly not worth the $80 of revenue in your example. You want to remove all WIP costs from the P&L, not add revenue to the P&L. This can have a large impact on the GST/HST and corporate taxes.

    Regarding payroll, the dates must be when the payroll was issued to the employees. Not when it works for you for WIP. This is very important for correct tax calculations, ROE and T4 reporting. Timeslips don't make any financial entry. Only an actual payroll run/ paycheque does.

    That said, as per smithco, this is often done on an annual basis.  Many companies also do it on a monthly basis. To do this on a monthly basis, I recommend using the projects module as an analytical tool. Post everything to a project and then at month end run the project income report and make an entry to wip from calculations derived from the detail.

    You could post all material and labour to a WIP account for every purchase, make those accounts allocatable and then run the project allocation report monthly to review just the WIP accounts. Note that report doesn't track a balance forward amount, so keep a monthly working paper on it. That seems like more work to me than reviewing the project income report though, and won't track the payroll overhead costs to the WIP. Well, you probably could, but all in all this method seems too convoluted for easy implementation.

  • 0 in reply to AmyGurl

    thanks SmithCo, appreciate your response.  I don't believe you have addressed how you record the revenue associated with the payroll expenses.  The client I am working with currently only has annual statements at tax time and wants to be able to have monthly income statements that reflect revenues as they are earned.  So unfortunately the annual adjustment won't work in this case.  but again, thank you.

    AmyGurl - I read what you have written and am kind of scratching my head here.  Per the CICA handbook:  "Items recognized in financial statements are accounted for in accordance with the accrual basis of accounting. The accrual basis of accounting recognizes the effect of transactions and events in the period in which the transactions and events occur, regardless of whether there has been a receipt or payment of cash or its equivalent."

    Your initial statement that revenue should be recognized when it is earned regardless of when the cost is incurred is false and violates the matching principle per accounting standards.  If you are working hours I would sure hope that it is highly likely you ARE going to bill them otherwise you won't be in business for long.

    I could go on responding to your note but I'll leave it at that.

    Anyone else out there have any suggestions on properly recording both revenue and expenses for project reporting and monthly financial statements in SAGE that complies with accounting guidelines and principles?

    thanks,

    Susan

  • 0 in reply to Susan Quesnesl
    verified answer

    Susan, you are correct re. recognizing partial revenue, cost, wages, etc

    this is done with accrual entries, so if I'm working on a project this month, and I've incurred 1/2 the cost, I should recognize half the revenue - so I will create a JE to accrue the revenue on the last day of the month (Sep), and a 2nd JE to reverse the accrual on the first day of the next month (Oct). So that when I invoice the customer in Oct, that the income statement for each month will show 1/2 the revenue

    the accrual process also applies to WIP cost, wages, etc

    a net search for "month end accruals" provides lots of info, ie.

    www.ehow.com/how_8667848_prepare-month-end-accruals.html

    www.ehow.com/info_10022593_end-month-wage-accruals.html

  • 0 in reply to Roger L

    Susan,

    Yes, revenues and expenses need to match, however the difference between adding revenue or removing expenses from the P&L is what I am talking about.

    1 hour payroll expense recorded.

    Could you actually send out a bill for that 1 hour in the same period, or do you need to complete more work first? Example, if I am working construction and have put 10 hours into say, a large roofing job. Until I complete the roofing job entirely, I can't invoice for it. Therefore, I keep the cost of material and labour in WIP on the balance sheet. NOTHING for that job appears on the P&L. Now, what if the roofing job is complete, but it is only stage one of a larger project? Then I can either invoice for the roofing as a stage completion or a progress bill. Record the actual invoice - no deferral required. Both ways are correct, but there is a difference.

    I am in NO WAY saying that the rev/exp should not match up. I'm saying be careful how you choose to record WIP - do not state a revenue that doesn't exist; instead remove the expenses.

  • 0 in reply to AmyGurl

    Under GAAP (I realize now we are using IFRS, but can't find that stuff right now) the general idea is:

    Revenue from the sale of goods or provision of services should be recorded when the significant risk/reward of ownership has been transferred and the selling price can be determined and when ultimate collection is reasonably assured.

    So if the job is no where near completed, there is no assurance whatsoever of receiving payment. To show revenues on a job 10% complete, unless a contract has been agreed upon where progress billings of such a small amount are permitted, is incorrect. Instead the costs of the job s/b on the balance sheet and nowhere on the P&L.

  • 0 in reply to AmyGurl
    verified answer

    If this is a contract situation where

    the job is cost plus,

    every hour is billable, therefore

    the revenue is earned as soon as there is performance,

    which means that as each hour is worked,

    there is a corresponding earned income amount.

    If your question is "Is there a way to track WIP in Sage *automatically*?"  then my answer is 'no, there isn't'.  

    Some of what you would need could be done with the built-in reports such as the Time & Billing Detail reports in the Report Centre.  

    The automatic entries are based around getting the tax remittances and employee pay correct, so the pay cheque / direct deposit date is used for accounting, rather than the actual dates the work was performed.  

    In a nutshell, it'll mostly have to be manual accrual entries, if you want the numbers on the financial statements.  

    If you just need the numbers for management reports, then it's a matter of building complex reports that will summarize the data the way you want it.  

  • 0 in reply to RandyW

    Thanks RandyW and crbookkeeping, that's helpful.  And yes, the revenues need to be recognized as they are earned as is typical for the clients I am doing work for, which are basically consultants billing hours and some fixed priced contracts, all of which have very high probability of being fully paid.  Not talking Enron here  :-)  They want financial statements that provide some value in managing their business and having lumpy revenues with no correlation to when they are earned would render the reports much less useful.

    I had figured out the accrual entry method but you reconfirmed that, so that's good.  It's far from an ideal way of doing this though as my experience with other accounting systems that do job costing is that the system does it automatically and also enables generation of a WIP report, etc.  

  • 0 in reply to Susan Quesnesl

    "other accounting systems that do job costing"   While Sage 50 doesn't really 'do' job costing, it does allow recording of information that is job-related, to make it possible to manually record job costs.

  • 0 in reply to RandyW

    Hi Randy.  

    Yes it does allow that, but it's not ideal.  The project module is in need of some TLC as alternatively it just doesn't meet the needs of clients who do much in the way of project costing/accounting.  Even the most fundamental field of project manager isn't recorded on there except through additional information.  And that's messy when it comes to reporting.

    Having to do a lot of manual entries to get the end results defeats the purpose of having a system.  It would be like having to do a JE every time I pay an AP invoice.  So while I can make this work, if I have clients that need to do a lot of transactions with different billing rate schedules, who need to pull off project reports by project manager, etc, etc I can't unfortunately endorse SAGE to meet their needs.  

    thanks,

    Susan

Reply
  • 0 in reply to RandyW

    Hi Randy.  

    Yes it does allow that, but it's not ideal.  The project module is in need of some TLC as alternatively it just doesn't meet the needs of clients who do much in the way of project costing/accounting.  Even the most fundamental field of project manager isn't recorded on there except through additional information.  And that's messy when it comes to reporting.

    Having to do a lot of manual entries to get the end results defeats the purpose of having a system.  It would be like having to do a JE every time I pay an AP invoice.  So while I can make this work, if I have clients that need to do a lot of transactions with different billing rate schedules, who need to pull off project reports by project manager, etc, etc I can't unfortunately endorse SAGE to meet their needs.  

    thanks,

    Susan

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  • 0 in reply to Susan Quesnesl

    Sage 50 handles the 'core' of accounting tasks very well, but as you see it can seem sort of... useless, for business operations. 

    For instance, in A/P it's possible to un-check "Invoice Received", which changes a 0 to a 1 in the database, and shows a checkbox on screen.   None of the built-in reports in Sage 50 can be filtered, sorted, etc. based on this checkbox.  The Payments screen doesn't either.  

    So... as a business operations system, it's kind of useless.

    EXCEPT

    If you use Sage 50 Intelligence, or XLGL, or LibreOffice, or Microsoft Access, you can take advantage of the FREE, included ODBC connectivity and build a custom report or query that shows you an aging report by due date, of what you have to pay.

    Likewise, with the time-sheet and project data, all the information that is there, can be gotten out - with the proper tools. 

    Even with the basic included functionality, once all the timesheets are entered, and payroll is done, during the billing process, the system can record everything for you, and all the project tracking entries are done.

    So... Sage 50 is great for recording after-the-fact data, but it's not a complete project management tool.  A Time-tracking program for Service / Practice Management package may be needed.  

    If you need to track, for instance, how much time out of a budget or bid job has been used, you need something more than Sage 50.   (possibly an add-on, but not necessarily some other accounting software instead of Sage 50)

    *************************************************************************

    This part below is my opinion on how Sage 50 compares with QuickBooks, with an example:

    Sage 50 tends to have a more accounting-centric design, so the focus is on year end and financial statements, and less on the poor data entry elves trying to pound square pegs into round holes.  

    As long the accounting part is complete and working, they don't seem over much interested in operational issues - So as long as you can pull a PAPER invoice out of a STACK OF PAPER, that's been MANUALLY SORTED by date and LOOK AT IT, you can easily pay your invoices on time, and that's good enough...  for accounting and year end purposes.

    QuickBooks sort of 'grew' out of Quicken, so it's really user-friendly, sometimes to a fault.   For instance, it allows negative inventory, and there's no way to 'shut off' allowing it.   There's really no 'final' year end, only a password protection system.

    So as long as the operational part is complete and working, they don't seem over much interested in improving the accounting functionality. 

    If you un-check the "invoice received" box in QuickBooks, it will change how the item is displayed on screen, so that you can clearly see it hasn't been invoiced yet.

  • 0 in reply to RandyW

    and we, as users, can only hope that the development teams of both packages are incorporating the 'best-of-functionality' from the other .....

  • 0 in reply to Roger L

    If only everything was just like the ad described it...

    So if she's over 65, Sage 50 will manage projects with ease.

  • 0 in reply to Susan Quesnesl

    Randy I never really looked at the MANAGED part of the marketing banner. I agree Sage50  does not manage projects and does track them and provides the user with a basic income statement but that is it. I always refer users to Sage 300 if the need to manage projects, OR MISys