V3 New Feature – Work In Progress Reporting
Work In Progress Reporting Fundamentals
Work In Progress Reporting, while not strictly a new feature in Version 3, has been overhauled to ensure performance is vastly improved and increased flexibility is provided with regards to the projects you are able to report on.
The primary use of Work In Progress Reporting relates to accounting for tax purposes and therefore selecting any subset projects is not relevant, however, it has become clear that the valuable information this report provides is desired by many businesses at different times throughout the year, for varying time frames and selected groups of projects. Hence, Version 3 has powerful project filtering and back dating options to cater for this need.
The purpose of Work In Progress Reporting is to match all revenue for work completed, with the costs incurred with earning that revenue – in the same reporting period. Therefore if you have recorded costs at a given point in time, and have not yet earned or collected revenue in relation to those costs, you are not expected to report those costs yet. At a given date, such costs represent an asset, something you have paid for and will realise value for your business in the future – an Asset: Work In Progress (W.I.P). Likewise, if you have collected revenue that relates to costs you have not incurred yet, you should not be reporting that revenue yet – you have a liability: Revenue In Advance (R.I.A.).
While the tax effect of a large value for Work In Progress does reduce the costs you are able to report and is therefore undesirable in the short term, it is important to remember that Work In Progress Reporting is all about timing. All costs will be reported eventually. What you record as W.I.P. in one accounting period quickly returns to your Cost of Sales the following period and hence the tax benefit returns. The reverse is of course true to Revenue In Advance.
The most important facet of Work In Progress Reporting is consistency.
The percentage of work complete on your jobs is the major underlying factor of W.I.P. (or R.I.A.) calculations. Total expected costs is a key component in this percentage complete figure. The expected costs can be seen as either an initial budget value of costs for a project, or forecast costs – based on projections of total cost per cost centre given changes which may have occurred as work progresses. Constructor provides a powerful budgeting and tracking tool for keeping forecast costs, per cost centre up to date and therefore you have a choice as to which value to use when reporting on W.I.P.
You also have some options when determining the final value reported for W.I.P. – be it valued at the Historic Cost or the work, or the value the work has earned for your business – Earned Value. It is imperative (and a legal requirement) that you use a consistent method from one period to the next.
So, Constructor Version 3’s Work In Progress report provides options for using either Original Budget or Forecast cost value when determining expected costs, and for valuing your W.I.P. (or R.I.A.) at either Historic Cost or Earned Value.
You are also able to run the report for any selected subset of projects, or even just one project.
The report can also be run as at any date. All reporting values can now be determined as at any point in time.
Work In Progress Reporting Calculations
The crux of W.I.P. or R.I.A. figures is a comparison of expected values of costs and revenues to actual values of costs and revenues.
Expected values of costs = Percentage of Revenue Received (Revenue / Total Project Price) * Total Estimated (or Forecast) Costs.
Expected value of revenue = Percentage of Costs Incurred (Actual Costs / Total Budget (or Forecast) * Total Contract Price.
By restricting the “percentage” figures in both parts, to 100%, you prevent the calculations from returning impossible values once the project is complete. From there, quite simply, if Expected Costs exceed Actual Costs, you have W.I.P. If Expected Revenue exceeds Actual Revenue, you have R.I.A.
The restriction on 100% for the percentages in each calculation prevents a situation where both W.I.P. and R.I.A. are recorded.
Constructor’s Work In Progress report highlights the options chosen for the calculations in the top right corner. Each value used in the calculations is spelled out across the page to make the final value arrived at, as clear as possible.
For an even more in depth analysis of Work In Progress reporting, Constructor’s calculation and definitions from the A.T.O. see this knowledge base article on Constructor’s new support site.