Opening balance for Work in Progress

Question asked by Michelle Clark 7 years ago

I am moving over to Clearbooks and cannot work out how to set up an opening work in progress balance (part of cost of sales). The only solution I have found so far is to set it up as inventory which doesn't seem accurate. I have set up all other opening balances without problem. I work for a small house builder and the work in progress is the running total of material and labour costs for the house build. Any ideas please? Thank you

5 Replies

Hi Michelle - There are a couple of ways of dealing with this.

  1. In your business, where you are accumulating unsold cost "Inventory" is actually the account type you should use, it's what the word means and so, as Latha describes, create your "WIP" account and allocate it to the Inventory type.

This "parks" the cost on the balance sheet and then, as properties are sold, you transfer their cost into profits by taking the cost out of WIP to a Cost of Sales account, using a journal entry.

  1. Many businesses that buy stock to sell, do the reverse of the above. So they put the costs directly to the cost of sales account in the P&L, rather than to a Stock account (again an Inventory type).

What they then do, every accounting period, whether that be monthly, quarterly or annually, is to transfer out the cost of stock, at the period end, from the cost of sales account, to the Stock account.

So both methods end up doing the same thing.

If you have several developments on the go at a time with lots of costs split between them then, to make sure the relevant properties are noted on each cost, so that you can see which to transfer, you have to remember to put details in the summary box of the suppliers' bills as this will show up when you look in the account holding all the costs using Report>Transactions. If there are loads of costs then you can download the report as a CSV spreadsheet to sort them.

The problem with this is if you get a bill that covers more than one property and so, in this case, or if you don't want to have to faff about with spreadsheets, you are better off using method 2 and setting up "Projects" and "Project invoice items" (In Settings/Toggle features) this enables you to allocate a property project to each cost, per line of a bill if necessary, as well as to the sales, with the added benefit that you can then do a Project P&L account under the Project tool to see all the property costs (and sales) split out per property.

Unfortunately, using projects is of no use if you accumulate costs in the WIP account (under 1.) as you can't do a project report on balance sheet accounts.

Hope that long winded response helps

Hi Michelle

Welcome to Clear Books !

Work In Progress is normally treated as a current asset in the Balance Sheet. I would suggest you create an account code as Work in Progress and you can either choose account type as Other debtors under category current assets or create an account type Work in Progress under current assets. In future you can have a separate WIP for each house build if that would help.

To create an account code, go to Settings>Code>Create and whilst doing that you will also have an option to add an account type.

Hope this has been helpful. If you need further help please feel free to raise a ticket to support and we can give further help specific to the issue.

To raise a ticket please click on Need Help button on your dashboard which will then open up a box where you can send support an email.

Best regards

Latha

Sorry I seem to have 2 x 1s !!

Thank you both for your replies, I now have the opening balance set up and new purchases being booked to the correct account codes. I'm hoping you could help with another problem please - with the opening accumulated depreciation balances. I have set up a debit opening balance in the motor vehicles account and trying to set up a credit opening balance for accumulated depreciation but Clearbooks is expecting a debit balance. I have entered a negative amount in the debit field to balance the opening balance sheet but I'm not convinced this is how it should be entered. Your help will be much appreciated.

Hi Michelle

If you are using the Getting Started> Opening Balances then you should record the asset as a positive figure and the accumulated depreciation as a negative figure and the difference would be then matched by other assets/ liabilities on your opening balance sheet or difference taken to Retained profit. I have attached a screen shot to just give you a guide. Hope you are able to get the opening balances sorted.

https://s3-eu-west-1.amazonaws.com/uploads-eu.hipchat.com/36185/2368368/vRQNV9QttEIljey/upload.png

Also once you bring the balances into accounts, do not forget to update the assets register too with the details so that depreciation can be calculated by the system every month.

You can also raise a ticket or a help email to ask us in support for help by going to the help button on your dashboard and clicking on send email.

Best regards

Latha

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