Hartford Construction Accountants CPA: William Brighenti
Certfied Public Accountant, Certified Business Valuation Analyst
Certified QuickBooks ProAdvisor, Sage Master Builder Consultant
Prepare Your Own Work-in-Process (WIP) Schedule

46 Mildrum Road, Berlin, CT 06037               Telephone: (860) 828-3269               Email:  info@cpa-connecticut.com

WIP is an acronym representing the term, Work-in-Process.  Work-in-Process means exactly what it connotes:  it refers to all of the construction and manufacturing projects that have not been substantially completed and are still on-going as of a particular point in time, typically a cut-off date for a financial report.  Work-in-Process (WIP) schedules are necessary in construction and manufacturing to report the correct amount of revenues earned and the related costs incurred on contractual projects undertaken in an accounting period.  Their preparation requires the input of four parameters or variables:  the contract value, including all change orders; total estimated costs; billings or requisitions to date; and all paid and accrued costs to date. 

Often smaller manufacturers and contractors do not prepare the reports in-house but leave it to their certified public accountants to prepare at year end. This may be a very foolish move on the part of manufacturers and contractors for many reasons, including the following discussed below:

  1. The average certified public accountant will charge its client $150 per hour to prepare the WIP schedule. Its preparation may consume hours, if not days, in the preparation. The cost of preparing a work-in-process schedule can easily run into thousands of dollars, especially if the contractor or manufacturer maintains its records on the cash basis and fails to allocate indirect job costs, including construction interest, to contracts.

  2. A savvy contractor or manufacturer is often in a much better position to know its billings and costs for the period than an outside accountant.  The controller or accountant in-house, if not the owner, examines every invoice, submits every requisition, and knows better than anyone else, if there are outstanding invoices from subcontractors, which may arrive months after the reporting period.  On the other hand,  the outside accountant ordinarily delegates the preparation of the schedule to an underling, sometimes inexperienced and unknowledgeable of the construction industry.

  3. If all job costs have been posted and correctly allocated to projects, WIP schedules are easy to prepare, after one understands its procedure of preparation.  All that is required to prepare a WIP is the input of the four variables itemized above into an Excel sheet for each partially completed contract.  In a companion article on our website, the steps involved in the preparation of a WIP schedule along with a template to be set up in Excel are explained and illustrated.

  4. Preparing a WIP schedule in-house might prompt the contractor and manufacturer to review and analyze its construction and manufacturing operations, revealing inefficiencies, contract overruns, and corrective action.  Often a contractor or manufacturer is so absorbed in completing a job, managing his workforce, scheduling the work, billing, collecting monies, preparing contracts, soliciting more work, etc., that he never sits down and reviews in detail the progress on his current jobs in terms of costs in relation to the percentage of work completed to date.  Unfortunately, only when a job is completed may such an analysis occur, and then it is too late to make any necessary adjustments.

  5. As a corollary to the reason mentioned above, the regular preparation of a WIP schedule would enhance the overall quality of the accounting system of the contractor or manufacturer, perhaps even cuing him to allocate all indirect costs on a regular basis.  It is tempting for the controller or accountant, who is often overwhelmed by so many other demands, to not allocate indirect costs and let this task go till year end, if then, when it should be undertaken in a regularly recurring, timely manner.

  6. Certified public accountants are not infallible.  A contractor or manufacturer should always check the work-in-process schedule included in the financial statements compiled, reviewed or audited by its outside accountant.  Their WIP schedules, particularly if the CPA is new and has recently been engaged by the client, may be incorrect, failing to include or reflect something that a savvy cost accountant may easily detect if one has already been prepared in house and is available for comparison.

  7. Unless a WIP schedule is prepared monthly or quarterly, the contractor or manufacturer will not know what its true profitability is, and may be unable to prepare accurate in-house interim income statements.  Ongoing projects have a significant effect on the bottom line; to ignore their impact on interim reports would present a distorted picture of the results of operations of a manufacturer and contractor, perhaps leading to an unexpected surprise at year end, with little time, if any, to undertake any tax planning.

As mentioned above, there is a companion article on our website explaining and illustrating the steps in preparing a work-in-process schedule:  How to Prepare a Work-in-Process (WIP) ScheduleFor more information on work-in-process schedules, construction accounting, fade analysis, the percentage-of-completion method of accounting, the completed-contract method of accounting, construction tax methods, construction accounting software, or any other accounting and tax service, please visit our website:  Hartford Construction Accountants CPA: William Brighenti, Certified Public Accountant.

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