Work in progress accounting
Caution! Consult your accountant for detailed information about WIP transactions before proceeding to use WIP accounting.
Contractors who own and develop projects sometimes use a different method of accounting than those who develop projects for a client. When a contractor is involved in speculative work, bookkeepers or accountants often use work-in-progress (WIP) accounting. Because the company owning the project is performing the work, the company cannot expense the costs incurred during improvement of the property. While improvements do not generate income, they increase the value of the asset.
In WIP accounting, when you improve the property the costs incurred are posted to WIP accounts, located in the asset range of the general ledger. Liabilities, such as loans, post to the standard liability accounts until the sale of the property. Upon completion and sale of the project, the expenses and income are declared.
- If you have turned on the WIP Verification for job costs, and are posting job costs to a job that is marked Post expenses to WIP asset account, you cannot post to a direct expense account. A message appears: WIP Posting is not = to job costs. You must correct your posting before you can save.
- If you have turned on the WIP Verification for job costs, and are posting job costs to a WIP (Asset) ledger account for a job that is marked for Post expenses to WIP asset account, a message appears: WIP Posting is not = to job costs. You must correct your posting before you can save.
When you create the asset accounts for a speculative project, designate at least one WIP account in the asset range. It is far more common, however, to establish a ledger account for each cost type such as labor , materials, or equipment. The prebuilt ledger account structures supplied with Sage 100 Contractor include WIP accounts. If your company is working on several speculative projects, set up subsidiary accounts using the job number as the subsidiary account number.