The Work In Progress accounting of separate discrete jobs can be a feral minefield of unknown, unseen liabilities and unclaimed revenue. Where projects are not of a sufficient size to warrant dedicated finance personnel, the WIP financials are generally kept by account/project management and passed on to finance upon completion. Significant budget variance can go unchecked until it is too late to take corrective action.
Where an accounting system is used that doesn’t have the capability to assign specified job numbers, the costs become lost within the company accounts and specific job P&L reporting is not possible. Where the accounting system does allow for job accounts, the interface is often foreign to the project managers and so all bookkeeping is done by someone removed from the project leading to loss of details and thus creating inaccuracies.
By implementing a bespoke WIP accounting process these difficulties can be avoided. The interface can be designed to suit the teams, a web interface can offer a single repository for project related records (scope, time, expenses, revenue, pass through costs, correspondence, appointments etc). These can be synced to the central database (finance system, CRM, ERP), ensuring that any unexpected variance can be flagged in time for action to be taken.
The interface that different segments of the business use doesn’t have to be the same, so long as they have a universal database at their root. A single company data source avoids any data inconsistencies, therefore avoiding the arduous task of forensic reconciliation. WIP accounts can be managed in a dedicated online accounts SME application (see cloud accounting and finance systems white paper) or a program more familiar can be used Office 365 / Google Docs / online bespoke html pages.
WIP Job# Accounting - Set-up process
- Project specific chart of accounts; item list to track job costs
- Project team personnel authorisation levels established
- Project budget (time, costs, delivery milestones…) transferred from agreement
- Set up project bank account (actual or virtual)
- Set up expected billing schedule / revenue recognition
- Enter job direct and pass-through costs
- Decide and enter KPI measures
- Set up budget variance threshold warning levels
- Aged debtor / creditor reporting
- Project scope adjustment record (return to 1)
- Job close process guide
- Job completion Reports (contribution, EBITDA, KPI, ratio analysis, overhead allocation etc)