Jobs with current costs that have not yet been billed will understate your income, to match your income to your expenses use the Work In Process Report, or WIP Report when preparing your Income Statement
In this video…
Hi, Greg here for On-Track Business Management. In this video, we’ll be talking about the Work in Process report or the WIP report. If you have any jobs that are not complete when you’re preparing your income statement, you can analyze that jobs are over or under billed at that point of time using a Work in Process report or a WIP report. For our income statement to be accurate, we need to match income and expense for the same period of time. This is called the matching principle. You may have a job you’ve been working on and incurring costs with, but you’ve not billed for that job yet. Your income is understated unless you post an entry correcting the income. That’s why when we look at some contractor’s income statement when they’re not posting over or under billings, it looks like the contractor is losing money, until they bill for the job. For more detailed information on the WIP report, you can download an article from the resources section of the On-Track website.
In the next video, we’ll review a cash flow report.
Next Video: Cash Flow