Wip

sarahwilsonsarahwilson Experienced MentorPosts: 567Registered
Can someone put me straight on WIP, I'm sure I'm right but someone at work (sales I might add) is confusing me!!

We had a job of 10k plus VAT that was started and not finished at the end of April so we have made a journal to put WIP into April, basically crediting the sales figure with 10k and debiting the WIP account with 10k in Sage.

So I'm saying to sales that the sales figure is going to be debited by 10k when we make month end adjustments to bring the WIP account back to zero.

Am I right :confused1:

Comments

  • PAMDILLPAMDILL Experienced Mentor Posts: 715Registered
    I don't think it should have gone near your sales figures unless you had already invoiced it.

    You should have 2 nominal ledger accounts for WIP - one in the balance sheet section and the other in the profit and loss section.

    At month end you would do a journal for the value of work to date carried out on the contract (not the figure you are going to bill)
    You would debit the balance sheet account and credit the p&l a/c

    Then on 1st of month reveres the above journal.
  • A-VicA-Vic Expertise Guaranteed Posts: 6,970Registered
    Am i right in thinking the only two accounts that should be involved are stock and WIP (debit WIP credit stock)
  • sarahwilsonsarahwilson Experienced Mentor Posts: 567Registered
    It could well be, I don't do the month end adjustments (don't even get me started on that!!)

    I have a journal in sage showing a debit to 1002 Work in Progress then I have a journal credit to various 4000 codes which are sales and equal the debit amount.

    I know the sales figure increased when our young lady did the WIP adjustment so she has used sales as the double entry point. I'm not sure in all honesty if thats correct how shes done it but debits and credits in reverse will have to be done to balance things up won't they?

    I dont think we should have put the whole amount through and I also don't think we should still be sat here at the 20th with this false figure of sales as you say Pam, I think it should have been reversed at the first.

    Unfortunately my line manager sees fit to pay for someone to come in and do the accounts at month end and leave them to it. The end result being I aren't learning anything and no ones sure what exactly they've done when they've gone.
  • A-VicA-Vic Expertise Guaranteed Posts: 6,970Registered
    It could well be, I don't do the month end adjustments (don't even get me started on that!!)

    I have a journal in sage showing a debit to 1002 Work in Progress then I have a journal credit to various 4000 codes which are sales and equal the debit amount.

    I know the sales figure increased when our young lady did the WIP adjustment so she has used sales as the double entry point. I'm not sure in all honesty if thats correct how shes done it but debits and credits in reverse will have to be done to balance things up won't they?

    I dont think we should have put the whole amount through and I also don't think we should still be sat here at the 20th with this false figure of sales as you say Pam, I think it should have been reversed at the first.

    Unfortunately my line manager sees fit to pay for someone to come in and do the accounts at month end and leave them to it. The end result being I aren't learning anything and no ones sure what exactly they've done when they've gone.

    Thats the one thing i hate about my job having to take over someone elses part finished job or passing it on sometimes id love to do a job from start to end product not one person does the same thing - thats why now with ever regular job i do i keep notes to pass on and insist they do the same.

    It seems to me without the correct way been done all you can do is reverse the journal but advise for next month end that it needs to be correctly transfered
  • sarahwilsonsarahwilson Experienced Mentor Posts: 567Registered
    I know I hate it because she comes and does all these adjustments which I would really benefit from learning how shes doing them because then I could explain to people why things are how they are whilst she not here. T'is rubbish:thumbdown:
  • ketteringladketteringlad New Member Posts: 7Registered
    w.i.p

    As i understand it, w.i.p is the debit entry while materials,direct labour,and production overheads are the credit entry from their respective accounts. Thats how it works in a manual system anyway.
    Sales has nothing to do with the double entry untill the goods are transferred to finished goods, and actually sold.

    hope this makes sense after 2 pints of lager and a packet of crisps.

    Charlie.
  • A-VicA-Vic Expertise Guaranteed Posts: 6,970Registered
    As i understand it, w.i.p is the debit entry while materials,direct labour,and production overheads are the credit entry from their respective accounts. Thats how it works in a manual system anyway.
    Sales has nothing to do with the double entry untill the goods are transferred to finished goods, and actually sold.

    hope this makes sense after 2 pints of lager and a packet of crisps.

    Charlie.

    Wow i need beer :lol:

    Yep as far as i remember it will be Debit sales Credit WIP (just transfering out)
  • PAMDILLPAMDILL Experienced Mentor Posts: 715Registered
    As i understand it, w.i.p is the debit entry while materials,direct labour,and production overheads are the credit entry from their respective accounts. Thats how it works in a manual system anyway.
    Sales has nothing to do with the double entry untill the goods are transferred to finished goods, and actually sold.

    hope this makes sense after 2 pints of lager and a packet of crisps.

    Charlie.
    The journal I do with the P&L a/c WIP and B?s WIp nominal a/cs works out the same as crediting materials etc. it is just that it is easier that way in a construction or mechanical engineering situation (only 2 I have worked in) than trying to split up the contracts to all the different sections.

    In the mechanical engineering situation it was all manual accounts and that was the way the accountant taught me to do it.

    It is also the way I had been taught at night school when I studied Higher Accounts.

    At year end you still did it the same way but had a breakdown of each contract and the amount spent at each site.
  • PGMPGM Font Of All Knowledge Posts: 1,954Registered
    Depends on your system of accounting.

    Some simply keep all sales in the sales nominal codes, so you would have to dr that and cr deferred income.

    Although the first post mentions work is started? So you might transfer slightly less than the 10k.
  • qwertyqwerty Feels At Home Posts: 82Registered
    Debiting sales is the correct way to treat the WIP. WIP is the value of work completed at the reporting date which has yet to be invoiced. The full £10k should not have been recognised in the April accounts as the work "was not finished at the end of April" so only the proportion relating to the work done should have been recognised.

    So if 50% of the was done, recognise £5k. This would be:
    Dr Work in progress (or amounts receivable on contracts) £5k
    Cr Sales £5k

    When you invoice the £10k, the entries would be:
    Dr Debtors £10k
    Cr Sales £10k

    You would then journal out the WIP:
    Dr Sales £5k
    Cr WIP £5k

    If, however, at the end of May you had not invoiced the job, but the job was now 80% complete, you would recognise a further 30% (£3k) of WIP in sales and therefore carry £8k WIP in the balance sheet, which will be reversed in June if the job is complete.

    Hope this helps.
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