Work in progress

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This is probably the hardest and most overlooked entry. Work in progress is the value already put into a project, job or sales order, that has not yet been fulfilled and therefore does not yet appear in the accounts. Left un treated this would show the business making less profit because this expense would be offset against current sales instead of the future sale. Making a provision for work in progress just delays this cost until the corresponding sale is entered and a true picture can be had. If you have a lot of jobs going on at once this can be virtually impossible to determine without the use of a Job Costing system to keep track of it.

You can not, bring sales forward, you can only delay costs. Having established the value of the costs involved in work in progress you can make a journal entry. The two sides of which are the Balance sheet WIP account (1002) and the P&L accounts for the types of work normally these would be direct materials and labour costs in the range between 5000 and 6999.

Because WIP can have a big impact on Profit and Loss, financial professionals such as bank managers will always check in the Balance sheet that WIP is not permanently growing.

To start you need to reverse out the previous months provision as some if not all of that work is completed and any uncompleted work will be in the current valuation. After reversal the WIP account should have no balance. If it has a balance then you have made a mistake and need to sort it out before making the new provisions.