WIP (work in progress) journals

[mango]

Hello everyone,

We had our year end and its time for me to post some journals... the one im having difficulty understanding is the WIP.

We build residential homes.

At year end 31 March we had still a few jobs unfinished. I wanted to invoice them before month end but they paid only in April. I know also that
the right way to do this is to post WIP journals... or am i not correct here.

I thought of:
Dr Work in progress 2 000 000 (Balance sheet asset account)
CR ??? (not sure where to post this to) ?
CR Vat control account ? (not sure if this is correct) ?

We are in the 7th year of trading and i was told the CR account should also be a balance sheet item...

Any help will be appreciated !!!

[Andromeda]

Hi Mango

It should be your cost of sales account. I presume that is where you debit construction costs to. The point of wip is to match costs to sales.

[mango]

hi there,

Yes i would have cr construction cost (cos account).

I just heard that the other way of doing this is:

DR Accounts receivable xxx
CR Sales xxx
CR VAT Control xxx

Then once the new year starts i reverse that journal in the new year and simply just invoice the customers which i allocate their payments to...

Is this correct?...im really confused here

[Andromeda]

No. That would absolutely no sense. It is hopelessly wrong.

WIP is less about the asset and mostly about matching cost to sales, if you know what I mean.

[mango]

ok so it should be like this:


2 projects still not completed:

Client A

DR WIP
CR Material Cost
CR VAT Control



Client B

DR WIP
CR Material Cost
CR VAT Control


This is for year end 30 March 2016.... then those 2 clients paid us in our bank on the 5th of April 2016...

Do i then "reverse" those journals and issue Tax invoices for those 2 payments that came into the bank?

[Andromeda]

1. You should ignore VAT. The entries must exclude VAT. The VAT claimed is in accordance with VAT Act. The entries' sole purpose is to correctly report the financial position at year end.

2. On 1 April you reverse the entries and continue as normal.

[mango]

Hi,

This makes so much more sense....

But tell me do you "reverse" it in the 1st day of the "new year" or do you reverse it at the "last day of the previous year"

I need to know this as well have income tax associated depending in which day i process it.

[Andromeda]

The first day of the new year.

[Valinhos]

question about markup

Do you do this journal of debiting Wip at cost or at markup value

[Andromeda]

At actual measurable cost incurred pro rata by the stage of completion