WIP Accounting

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Yestin
Yestin Registered Posts: 83 Regular contributor ⭐
Hi Everyone,

Can someone please explain how to run WIP in a service industry....why you are dealing with stock that's fine when when it's a service and no physical product it get's a bit complicated for me.

We work on websites and sometimes the job will start in June and only be billed in August!! but the Director would like to see a sales value as the moths go by....

CR Sales
DR Work in progress (Balance Sheet/Current assets)

That's how I would do it? and then when the invoice is raised what do you do then...you have the say £1000.00 spread over 3 months with the above journal and then you raise the invoice in august! so the invoice journal will be:

CR Sales
DR Debtors control account

At this point you have now overstated sales by £1000.00

If you reverse the first journal it will show all the revenue in August and nothing in the other months...or am I missing something?

Any help would be much appreciated.

Comments

  • slackda
    slackda Registered Posts: 460 Dedicated contributor 🦉
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    I would be looking at it this way,

    When your director want to see sales,

    CR Sales (P&L)
    DR Defered Revenue (BS)

    When you raise the invoice -

    CR Defered Revenue (BS)
    DR Debtors Control (BS)

    Be wary of IAS 18 which if i remeber correctly is revenue recognition, after all you have to follow the rules.

    Also doing it this way you will need to be able to acuratly forecast your costs, or runa % of completion method to recognise both your cost and revenue at the same time.

    I.e

    CR Sales
    DR Defered Revenue

    DR Cost of Sales (for your % of completion)
    CR WIP(for the same % as your WIP)

    The problem is measureing your cost accuratly against your sales.

    ~You can do it your way i think how ever your journal in august would be CR WIP not Sales as you have already been recognising your sales through the year. :D

    Hope that makes sense and helps
  • Yestin
    Yestin Registered Posts: 83 Regular contributor ⭐
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    Thanks, now let my try put that into practice!!! here we goooooooooooooooo
  • RichardK
    RichardK Registered Posts: 107 Dedicated contributor 🦉
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    Yestin wrote: »
    Thanks, now let my try put that into practice!!! here we goooooooooooooooo

    Hi,
    Regarding your query, you may find this ACCA document useful. It has some useful case studies and information regarding revenue recognition and measurement in addition to references to the relevant GAAP and IAS priciples and standards.

    You may also find the notes on double entry useful.

    http://www.accaglobal.com/pubs/students/publications/student_accountant/archive/sa_jan08_clendon.pdf
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