![Percent Complete Construction CPA](/img/default-banner.jpg)
- 54
- 16 686
Percent Complete Construction CPA
United States
Registrace 27. 09. 2021
I'm a CPA working for a mid-size public accounting firm specializing in construction compilations, reviews and audits. I've learned common themes along that I think you can benefit from. Thanks for tuning in!
How it works: Incorporating prior year activity in your job schedules
Keep your prior year WIP schedule handy when building your current year schedules. You'll need to extract the following information to ensure you're working with accurate inception to date amounts:
1) Billed to date (through the end of the prior year)
2) Cost to date (through the end of the prior year)
3) Revenues earned (through the end of the prior year)
1) Billed to date (through the end of the prior year)
2) Cost to date (through the end of the prior year)
3) Revenues earned (through the end of the prior year)
zhlédnutí: 30
Video
Subsequent Project Activity
zhlédnutí 23Před měsícem
Before you rush to build your work in progress (WIP) report as of December, spend some time evaluating subsequent activity. After evaluating subsequent activity you may discover that you have need to adjust costs or estimates.
Underbillings: An overview
zhlédnutí 52Před 2 měsíci
In this video we cover the concept of an underbilling with the use of sweet graphics! Hopefully adding a new way of understanding underbillings. www.thewipreport.com
Do your underbillings make sense? Watch this to find out.
zhlédnutí 75Před 3 měsíci
You want to know if your underbillings make sense. I've put together a list of common scenarios I come across with underbillings that I hope will answer that question!
Retainage Receivable, everybody's favorite topic!
zhlédnutí 60Před 3 měsíci
You should be recording retainage from your progress billings in your accounting software. We discuss what that means and how it changes the balance sheet, income statement, and WIP report.
Error in your Accounts Receivable (A/R) balance
zhlédnutí 28Před 4 měsíci
You've got some homework to do. Pull up your AR aging schedule and look for potential errors. I've seen many clients record cash receipts against A/R without ever recording the invoice. What that leads to is a large credit balance hanging out in your A/R which could be significantly understating your assets. Thanks! www.thewipreport.com
How you recognize a loss on a project
zhlédnutí 62Před 4 měsíci
Normally, when you have a project with anticipated gross profit, you recognize a percentage of that profit based on your percent complete. BUT when you anticipate a loss, you have to recognize the entire loss! Learn the mechanics by watching this video. Link to AICPA Sample Construction Financial Statements: us.aicpa.org/content/dam/aicpa/research/exposuredrafts/accountingandauditing/downloadab...
Overbillings aren't a bad thing. Just make sure you have the assets to back them up.
zhlédnutí 34Před 4 měsíci
There are a lot of people that get concerned about overbillings because they decrease revenues and increase liabilities. That should be the least of their worries. What matters most is what the cash and contracts receivable balance shows on the reporting date. I've included a link to the lesson below: www.thewipreport.com/post/don-t-fear-the-overbilling-by-blue-oyster-construction
Addressing unusually large overbillings and underbillings (construction WIP adjustments)
zhlédnutí 75Před 4 měsíci
So you've prepared a preliminary WIP (work in progress) report based on your underlying records. Contract estimates agree to your reports and billings and costs tie to the job subledger, but something seems off. Over/underbillings seem high for some reason. What are you going to do about? How do you address it? In this lesson we'll cover different scenarios that could be causing this and what y...
Quick overview on total estimated cost
zhlédnutí 26Před 4 měsíci
Having accurate estimates is crucial for calculating WIP (over/underbillings). In this brief lesson we'll cover what total estimated cost is and how you should track it. You'll want to make sure your accounting software will help you track costs associated with your total estimated cost.
Cash flow template by job for construction contractors
zhlédnutí 40Před 4 měsíci
Simplified cash flow worksheet that should help you track cash inflows/outflows as well as future cash inflows/outflows by job. This lesson goes over how the worksheet works using an sample job. Click the link below to download: www.thewipreport.com/post/cash-flow-by-job-worksheet Thanks!
Good vs bad job sub-ledger: why it matters
zhlédnutí 26Před 4 měsíci
Before you start building a work in process (WIP) schedule, make sure you're working with good data. Good data starts with billings and costs being recorded to the appropriate job. If you don't keep track of billings and costs correctly, you'll skew your under/overbillings. See how.
WIP Adjustment/Journal Entry: Some Key Points
zhlédnutí 468Před 5 měsíci
May not be new information for you but I hope it helps simplify the concept of under/overbillings in accounting terms. In this video you'll learn: 1) The accounts you'll need to book WIP. 2) How increasing/decreasing under/overbillings affects revenues. www.thewipreport.com
Unallocated Job Costs: What are they and how do they change your contract schedule presentation?
zhlédnutí 44Před 5 měsíci
In this lesson I'll briefly cover what unallocated job costs and reference the job subledger and trial balance. I'll also discuss different methods of presenting contract schedules in light of unallocated job costs.
Prior year revenues earned and prior year costs incurred
zhlédnutí 49Před 6 měsíci
Understanding how prior year revenues earned and prior year costs incurred is crucial to building accurate contract schedules. Remember that construction accounting is about using inception to date amounts, which means you have to "cancel" out prior year activity. Learn how in this video. www.thewipreport.com
Rolling Retained Earnings Part Trois. With journal entries!
zhlédnutí 122Před 7 měsíci
Rolling Retained Earnings Part Trois. With journal entries!
How do you if you're calculating construction WIP correctly?
zhlédnutí 152Před 7 měsíci
How do you if you're calculating construction WIP correctly?
QuickBooks Profit and Loss by Job Detail: Gotta use it if you're a construction contractor
zhlédnutí 99Před 8 měsíci
QuickBooks Profit and Loss by Job Detail: Gotta use it if you're a construction contractor
Bank Rec Wreck: Duplicate entries may be living on your books!
zhlédnutí 42Před 9 měsíci
Bank Rec Wreck: Duplicate entries may be living on your books!
Calculating the journal entry to properly record gain/loss on disposal of fixed assets!
zhlédnutí 44Před 9 měsíci
Calculating the journal entry to properly record gain/loss on disposal of fixed assets!
Don't let unrecorded job costs skew your financial statements!
zhlédnutí 44Před 10 měsíci
Don't let unrecorded job costs skew your financial statements!
Unusual activity on your WIP (open job) schedule
zhlédnutí 38Před 10 měsíci
Unusual activity on your WIP (open job) schedule
Closed Job in your Open Job (WIP) Schedule
zhlédnutí 49Před 10 měsíci
Closed Job in your Open Job (WIP) Schedule
Addressing the troubled balance sheet
zhlédnutí 27Před 11 měsíci
Addressing the troubled balance sheet
Troubled Balance Sheet for Construction Contractors
zhlédnutí 239Před rokem
Troubled Balance Sheet for Construction Contractors
I like your voice!
Hahaha thank you!
Where do you place things like retainage and OH? OH as part of cost? Retainage still recognized as part of billings because you're using accrual accounting? Thanks!
Thanks for the question! Costs on jobs should include retainage. You record the entire cost and your offset is a credit to accounts payable and retainage payable. If you're allocating OH to cost to date you should include an estimate for total OH in your estimated total cost. Otherwise you will inflate percent complete. Billings to date should include retainage. You record a credit to revenue for the entire amount, debit to accounts receivable and retainage receivable. I recommend creating a separate GL account for retainage so it doesn't skew your aged receivables. Hope that helped! If not please let me know! Thanks!- Ara
Hi, wonderfully explained, Can I have your email ID ?
Thank you
Thanks for the comment, you're welcome! Hope it helped!
Want to connect with you
Thanks for commenting! You can reach me at info@thewipreport.com. Thanks!
this is awesome
Thanks for the comment. Glad you liked the video.
I hope you realize the tremendous value I’m getting out of this as someone who’s recently entered the construction industry and did not expect to find something so niche presented so well.
Thank you, I appreciate the kind words! It really means a lot. You've chosen a great industry and I'm sure you'll do great! Thanks again for the comment! Hope you can continue to tune into the lessons!
This is great video, thanks for posting. I am currently reconciling a WIP report for January 2024 _running behind with the posting- I see the company had created scheduled for older jobs and the balances are carried over from previous years. I am using the WIP #s for 2023 and i have updated all costs and billing for January 2024, . My predecessor used the number on the financial statements as " unadjusted" and the figures given by the wip as "adjusted" and the differences are the JE that need to be posted in the GL. My question is how do you reconcile the construction revenue account, as is an IS item my assumption is that every year starts from zero correct?
Thanks for the support and question! Yes it starts from zero for most software. Some software, example Quickbooks, includes all the current year progress billings under revenue. So the detail in that account only includes progress billings from 2024 for example. You will pull in the job subledger that summarizes all those billings by project and reconcile it to the trial balance account. As you mentioned, since it’s an income statement account, it will zero out next year. Since we’re dealing with inception to date amounts (billings to date), you’ll want to add all the prior year progress billings, 2023 and prior, to the 2024 amount. So, your prior year activity was reconciled in the prior years and your current year activity was reconciled this year. Other software will give you inception to date amounts with prior year revenue recognized as a debit revenue account, so the net gives you earned revenue, which takes into consideration the WIP adjustment. Now it’s best to create a separate account for the offset to over/underbillings, so the reconciliation is “neater”. That way all your progress billings go to one account and your WIP adjustment goes to a separate account and it’s not intermingled. Nothing wrong with the other way, just best practice I guess. I hope that all made sense. If not, please let me know! Thanks!
Hi! Great video. Question for you: what is over/under allocated costs and why do they matter? Thank you for taking the time to make content on CPA matters.
Thank you, I'm glad you found it helpful! If you haven't seen the following video, it might help. czcams.com/video/SNKOSx1mWhg/video.html Underallocated means there were job costs, usually indirect, that weren't allocated to specific jobs. So, when you sum up all the costs associated with projects, they are less than what the trial balance says are the total job costs for the year. From what I've seen, overallocations happen when you're allocating costs that aren't there. Some indirect costs like repairs/maintenance, insurance, depreciation related to equipment usage are allocated based on prior year averages because we don't know how much those costs will be this year. So, if we're using prior year amounts to allocate costs but current year costs are less than prior years, we will be adding more costs than what we actually have, so we're essentially over allocating. I hope that all made sense. I think they matter depending on the amount relative to total job costs. If you have a large dollar amount of unallocated or underallocated job costs, people may wonder if you're properly accounting for job costs or just adding it to the total pool and skewing project performance (profit). Typically, you'll see insurance, depreciation, and repairs and maintenance make up a large part of unallocated costs, which I think is fine. What I'm starting to realize is that a lot of this is just about presentation on the financial statements. If you have proper estimating processes, you will be capturing all the indirect costs and overhead in your markup and gross profit. So, no matter how you present the information the company is making money. The biggest part is making sure the costs you assign to a project result in progress on the project, which typically includes labor, material, and subcontracts. Repairs and maintenance, etc. don't add to the progress but they're still technically job costs. If you're including them by project, you have to make sure they're included in the total estimated job costs as well. I hope that made sense and was helpful. If not, please don't hesitate to let me know! Thanks again for the question!
hi, where do you normally put in commissions or referral amounts into this
Thanks for the question! I'll follow up with the dreaded response, it depends. There are typically two schools of thought with this. One school suggests that only costs that reflect progress towards completion of the project should be included in the total estimated cost and cost incurred, which typically includes line items on your schedule of values (ex. mobilization, bonds, material, labor, subcontractor costs). Another suggests that all costs related to a project, both direct and indirect, should be allocated to cost incurred and total estimated costs. In this instance, commissions or referral amounts would be included in costs incurred and total estimated costs. One of the main goals of the work in progress (WIP) report is to give users an idea of how the job is progressing and not necessarily if you're including all the costs such commissions and referrals. The over/underbilling is meant to give a glimpse of what to expect in the future. Your cash needs/obligations or expected cash inflows. I believe this is where the first school of thought (mentioned above) is coming from. All that to say, if you wanted to keep track of commissions/referrals on jobs you would include it in costs incurred and total estimated costs. So in addition to labor, materials, subcontractor, etc., in your estimated total cost, you would include commissions/referrals so you don't skew your progress towards completion. Otherwise your cost incurred would make it appear that your closer to completion than you are since you're including commissions. Hope that helps! Thanks again for the question!
what are the formulas in the over/underbillings column?
Thanks for the question! Essentially, you divide cost to date by total estimated cost to calculate percent complete. Then you multiply that percent complete by the estimated gross profit. Then you add that amount to the cost to date to determine how much revenue you can recognize. If that latest calculation is more than your billings, you have an underbilling. If it's less than your billings, you have an overbilling. Also, I would recommend downloading the template using the following link to see it. It should help you run through different scenarios to see how it comes together. www.thewipreport.com/post/wip-template Hope that helped! Thanks again!
What's the deal with the CIP Construction in Progress account and the Progress Billings account? I have heard of these for Construction POC accounting but don't understand if these are actually used?
Thanks for your question! I am going to do my best to answer this but I may raise some more questions along the way. When I think of the Construction in Progress account, I think of the asset that is being built for the company in question but isn't complete, which means it hasn't been put into service yet (not yet depreciated). If a construction company is on the completed contracts method, they may have a construction in progress account (asset or liability) where they record all activity on their projects, both costs and billings. When the project is complete, they adjust out all the contract activity on the completed project and move it to the income statement. They will credit that account and debit costs, and debit that account and credit revenue. Is the progress billings account you're referring to a liability on the balance sheet? This may be the account where they are recording billings until the project is complete. Neither one of the accounts I mentioned exist on a percent complete basis. Please let me know if that helped or didn't. I want to make sure I address your question properly. Thanks again for your question.
@@thewipreportconstructioncp2373 Thank you for this detailed response! When you said, "Neither one of the accounts I mentioned exist on a percent complete basis. " you answered my question perfectly. I had recently watched a video and read a textbook (please see link below) where they said "Construction in Progress" and "Progress Billings" (you are correct this is the liability account that accrues billings) are used on the POC method on the 2nd half of the video. This was throwing me off, maybe you can make sense of it. Seems as if what they're saying creates more work?czcams.com/video/C-NwN6OoBjw/video.html . Correct me if I'm wrong but under POC the Job expenses should hit the P&L right away as well as the Billings. Then at month-end an Over/Under adjustment can be made to adjust the revenue to match what Revenue Recognized should be under POC Cost-to-cost method with a corresponding debit to Underbillings (asset) or credit to Overbillings (liability)
The whole part after "Correct me if I'm wrong..." is correct! That's exactly how you do it with the percent complete method. Yes, I think he's discussing completed contracts method as well, which deals with the accounts you mentioned in your previous reply. The description says "Journal Entries for Long Term Contracts - Completed Contract v. Percentage Completion". So I'm assuming he talks about both. Hope that helps.
I'm an auditor, and this was a challenge for me today I'm watching your vids so I can solve this problem hopefully tomorrow morning Your content is already a huge help, so thanks a lot! I'm now subscribed and look forward to seeing more content!
Thank you for the kind words and thanks for subscribing! Awesome! I hope you can solve it tomorrow. I'm sure you'll get there! Feel free to reach out with questions!
You are very wise and telling the client to roll forward the retain earnings. But I have been in tax for 6 years. And nobody does this and I end up doing true ups. For this, it's a nightmare.
Thank you. I understand where you're coming from. I hope the more information we put out, the more clients will catch on. Thanks again for the comment!
Hi. I have a question. What if there is no WIP schedule since start of business and I want to start one. Some jobs started last year. What should I put under PY Revenues Earned and PY Costs to Date? Also, does it make sense to start calculating WIP starting November? It's almost the end of the year.
Hello! That's a really great question. A common approach I've seen and used is to ignore prior year revenues earned and costs incurred for your first year of implementation. Another approach is to record WIP in the prior period using a prior period adjustment by adjusting retained earnings. For simplicity's sake, I think the first option makes the most sense. If you do this, your revenues and costs from your job schedules won't agree to your income statement, which is fine as long as you have an accurate WIP on your balance sheet. I would just make sure that your billings to date and costs to date on your WIP are from inception to date. That's the biggest piece that will help the users of the financials. It might be a good exercise to calculate WIP in November if you have never done so. Depending on how many open jobs you have and if information isn't readily available. Maybe just going through the motions would make December go smoothly. Hope that helped! If not, please let me know! Thank you for your questions!
Thank you so much!
You're welcome! You brought up a good topic. I'll make a video about the first year of putting a WIP together. Thanks!
Thank you for this video, I have been looking for months for a channel that could help me to understand journal entries concerning wip and construction accounting
You're welcome! Thanks for tuning in and commenting. If you have any questions about other entries, please let me know. Thanks again!
This is awesome!
Glad you're enjoying the videos! Thank you!
Hi. Love your videos. What was the Job Cost accrual entry for?
Where did the $25,000 come from?
Great question! The $25,000 amount was a cost the company incurred in 2022 but did not record by 12/31/22. We were supposed to assume they received the invoice after year end and therefore recorded it in the following year, which is a mistake because they actually owed that amount by 12/31/22. The first scenario assumes they made the mistake of not recording that cost. So the entry is meant to show the correct way to recognize the cost and how that changes their WIP. I hope that helps, if not, please let me know! Thanks for asking and feel free to ask more questions! Thanks again!
Thank you for tuning in! I really appreciate the kind words!
That makes sense! Thank you so much!@@thewipreportconstructioncp2373
Great, you're welcome! Thank you!
Thanks for the explanation!
Anytime! Please feel free to reach out with any questions! Thanks for tuning in!
What happens with adding charge orders and estimated cost
Thank you for the question. It depends on how much costs you've incurred so far and how much the contract price and total estimated costs will change. I recommend downloading the template using the following link and inputting the contract information associated with a specific job, and the billings and costs to date. Once you've done so, document the total over/under billing. Then, change the contract price and estimated costs associated with the change orders to calculate the new under/over billings. If overbillings decrease or underbillings increase, you'll be recognizing more revenue. If overbillings increase and underbillings decrease, you'll be recognizing less revenue. www.thewipreport.com/post/wip-template If you have any questions, please let me know and I can try to guide you through the process. Thank you!
Do you include retainage in your billed to date column? Thank you
Hello! Yes, retainage is included in the billed to date column.
Thank you I never understood what is meant by Rolling retained earnings I always just shook my head and agreed and never asks everybody knew but thank you very much I never even thought of looking at it as a January 1st balance that makes more sense to me
You're very welcome! I'm glad the video helped out! Thanks for tuning in!
Really appreciate the videos man!
Glad you like them! Thank you for tuning in!
thanks!
You're welcome!