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…
Sometimes you need to get a handle on the overall financial health of your company in the middle of jobs. You may have been paid partially, or not at all for a job, but you still need to know where you stand, and take that future income into account. Luckily, there’s a way to figure this out — it’s called the WIP report. In this video, you’ll learn how the WIP or “work in process” report works and how it can help you with your construction accounting.
Why the Work in Process Statement is Important
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.
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 in time using a Work in Process report or a WIP report.
What Happens When You Don’t Have a WIP Report
If you look at contractor’s income statements when they’re not posting over or under billings, it looks like the contractor is losing money, until they bill for the job. The WIP report gives you a more accurate picture. For more detailed information on the WIP report, you can download an article from the resources section.
In the next video, we’ll review a cash flow report.
Next Video: Cash Flow