Understanding WIP methods in project management
As a project progresses, materials, resources, and other expenses are consumed and must be posted to the project. Work in Process (WIP) is a feature that enables you to estimate the financial value of projects in the general ledger while the projects are ongoing. In many cases, you might post expenses for a project before invoicing a project. When only expenses are posted, your financial statement is inaccurate.
To track the value in the general ledger, you can calculate WIP and post the value to the general ledger. For more information, see Monitor Project Progress and Performance.
Out of the box, Business Central supports the following methods of calculating and recording the value of work in process.
| WIP Method | Description | Recognized Costs | Recognized Sales |
|---|---|---|---|
| Cost Value | Recognizes cost when the customer is invoiced. Recognizes sales based on the invoiced sales. | Cost Value | Contract (Invoice Price) |
| Cost of Sales | Recognizes cost when the customer is invoiced. Recognizes sales based on the invoiced sales. | Cost of Sales | Contract (Invoiced Price) |
| Sales Value | Recognizes costs as they're reported. Recognizes sales proportionally to the reported costs. | Usage (Total Cost) | Sales Value |
| Percentage of Completion | Recognizes costs as they're reported. Recognizes sales proportionally to the reported costs. | Usage (Total Cost) | Percentage of Completion |
| Completed Contract | No sales or costs are part of the WIP calculation. Completed contract doesn't recognize revenue and costs until the project is complete. For example, this option is useful when there's high uncertainty around the estimates of costs and revenue for the project. | At Completion | At Completion |
Exact formulas and general ledger transactions are defined by the selection in the Recognized Cost and Recognized Sales fields.
Create a project WIP method
Create a project WIP method that meets the needs of your organization and set it as the default.
Note
After you use a method to create WIP entries, you can't modify or delete the method.
- Choose the
icon, enter Project WIP Methods, and then choose the related link. - Choose the New action, select the appropriate values for the Recognized Costs and Recognized Sales fields, and then fill in the other fields as necessary. Hover over a field to read a short description.
- Close the page.
- To make this method the default, choose the icon, enter projects setup, and then choose the related link.
- In the Default WIP Method field, choose the method from the list.
Recognized cost
| Recognized Cost | Recognized Cost Calculation Formula | General Ledger Entries |
|---|---|---|
| At Completion | 0 (Zero) | Dt Recognized Costs Account Cr WIP Costs Account Amount: RecognizedCost Dt WIP Costs Account Cr Project Costs Applied Account Amount: MAX[RecognizedCost; Actual (Total Cost)] |
| Cost of Sales | Actual (Total Cost) - Budget (Total Costs) * Invoiced%, where: Invoiced% = Invoiced (Total Price) / Billable (Total Price) Note: This calculation requires that the Billable (Total Price) and Budget (Total Costs) are correctly entered for the whole project. |
Dt Recognized Costs Account Cr WIP Costs Account Amount: RecognizedCost Dt WIP Costs Account Cr Project Costs Applied Account Amount: MAX[RecognizedCost; Actual (Total Cost)] Dt Project Costs Adjustment Account Cr WIP Accrued Costs Account Amount: RecognizedCost – Actual (Total Cost), If RecognizedCost > Actual (Total Cost) |
| Cost Value | Actual (Total Cost) – [Completion% – Invoiced%] * Billable (Total Price) * BudgetCostPriceRatio, where: BudgetCostPriceRatio = Budget(Total Cost) / Budget (Total Price) Invoiced% = Invoiced (Total Price) / Billable (Total Price) Completion% = Actual (Total Cost)/Budget (Total Cost) Note: This calculation requires that the Billable (Total Price), Budget ( Total Price), and Budget (Total Costs) be correctly entered for the whole project. |
Dt Recognized Costs Account Cr WIP Costs Account Amount: RecognizedCost Dt WIP Costs Account Cr Project Costs Applied Account Amount: MAX[RecognizedCost; Actual (Total Cost)] Dt Project Costs Adjustment Account Cr WIP Accrued Costs Account Amount: RecognizedCost – Actual (Total Cost), If RecognizedCost > Actual (Total Cost) |
| Contract (Invoiced Cost) | Invoiced (Total Cost) | Dt Recognized Costs Account Cr WIP Costs Account Amount: RecognizedCost Dt WIP Costs Account Cr Project Costs Applied Account Amount: MAX[RecognizedCost; Actual (Total Cost)] Dt Project Costs Adjustment Account Cr WIP Accrued Costs Account Amount: RecognizedCost – Actual (Total Cost), If RecognizedCost > Actual (Total Cost) |
| Usage (Total Cost) | Actual (Total Cost) | Dt Recognized Costs Account Cr WIP Costs Account Amount: RecognizedCost Dt WIP Costs Account Cr Project Costs Applied Account Amount: MAX[RecognizedCost; Actual (Total Cost)] |
When project status is changed to Completed, the Calculate WIP task reverts the WIP transaction and posts instead.
Dt Recognized Cost Account Cr Project Cost Applied Account , Amount: Actual (Total Cost)
Note
Depending on the selection in the WIP Posting Method Used field, the Item Cost Applied Account, Resource Cost Applied Account, or G/L Cost Applied Account could be used instead of Project Cost Applied Account. For more information, see Project posting groups.
Recognized sales
| Recognized Sales | Recognized Sales Calculation Formula | General Ledger Entries |
|---|---|---|
| At Completion | 0 (Zero) | Dt WIP Invoiced Sales Account Cr Recognized Sales Account Amount: RecognizedSales Dt Project Sales Applied Account Cr WIP Invoiced Sales Account Amount: Invoiced (Total Price) |
| Contract (Invoiced Price) | Invoiced (Total Price) | Dt WIP Invoiced Sales Account Cr Recognized Sales Account Amount: RecognizedSales Dt Project Sales Applied Account Cr WIP Invoiced Sales Account Amount: Invoiced (Total Price) |
| Usage (Total Cost) | Actual (Total Cost) | Dt WIP Invoiced Sales Account Cr Recognized Sales Account Amount: RecognizedSales Dt Project Sales Applied Account Cr WIP Invoiced Sales Account Amount: Invoiced (Total Price) |
| Percentage of Completion | MIN[Billable (Total Price) * Completion%; Billable (Total Price)], where: Completion% = Actual (Total Cost)/Budget (Total Cost) Note: This calculation requires that the Billable (Total Price) and Budget (Total Costs) are correctly entered for the whole project. |
Dt WIP Accrued Sales Account Cr Recognized Sales Account Amount: RecognizedSales Dt Project Sales Applied Account Cr WIP Invoiced Sales Account Amount: Invoiced (Total Price) |
| Usage (Total Price) | Actual (Total Price) | Dt WIP Invoiced Sales Account Cr Recognized Sales Account Amount: RecognizedSales Dt Project Sales Applied Account Cr WIP Invoiced Sales Account Amount: MAX[RecognizedSales; Invoiced (Total Price)] Dt WIP Accrued Sales Account Cr Project Sales Adjustment Account Amount: MAX[RecognizedSales; Invoiced (Total Price)] - Invoiced (Total Price) |
| Sales Value | Actual (Total Price) * Billable (Total Price)/Budget (Total Price) Note: This calculation requires that the Billable (Total Price) and Budget (Total Price) are correctly entered for the whole project. |
Dt WIP Invoiced Sales Account Cr Recognized Sales Account Amount: RecognizedSales Dt Project Sales Applied Account Cr WIP Invoiced Sales Account Amount: MAX[RecognizedSales; Invoiced (Total Price)] Dt WIP Accrued Sales Account Cr Project Sales Adjustment Account Amount: MAX[RecognizedSales; Invoiced (Total Price)] - Invoiced (Total Price) |
When the project status is changed to Completed, the Calculate WIP task reverts the WIP transaction and posts instead.
Dt Project Sales Applied Account Cr Recognized Sales Account , Amount: Invoiced (Total Price)
See also
Project Management
Finance
Purchasing
Sales
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