Share this content
0
390

Accounting for CIS and Work in progress

CIS enabled accounting packages account for Labour and Materials as cost of sales

The CIS enabled accounting packages I have seen create CIS Labour and Materials accounts classed as cost of sales accounts therefore appearing in the PnL. On a longer running project I would put them in Balance Sheet accounts as Work in Progress split into Materials and Labour etc. Then at the end of the project the balance sitting in the WIP accounts would be flushed out into the Cost of Sales accounts with a Journal to then appear as expenses in the PnL but until then they sit on the Balance Sheet. How do you deal with this scenario? If you don't use the designated accounts then the figures won't record CIS figures correctly as they don;t go into the expected accounts but if you do they appear in the PnL before you want them to. (My work around would be to process as required for CIS then use a Journal to move to the WIP accounts then back to PnL at the end of the project but this obviously involves more steps/complexity.)

Interested in what others do and if you agree/disagree with treament in general.

Replies

Please login or register to join the discussion.

avatar
19th Oct 2017 17:03

If I am reading your post right you shouldn't be posting the CIS to the WIP:

1) Invoice: Labour DR WIP, Materials DR WIP, CR PL Control Account.
2) Payment: DR PL Control Account, CR Bank, CR PAYE Control Account (CIS to be paid to HMRC with PAYE etc)
3) Project completed DR COS, CR WIP.

Thanks (0)
avatar
By awoodj
to kestrepo
19th Oct 2017 17:24

I may not have explained it very well so take an example in Clearbooks for a Property Developer building a house.

1. Developer wishes to purchase materials and labour which fall under CIS regime
2 They enter the Purchase of Labour using create Bill into the account automatically created by Clearbooks CIS functionality being selected, called CIS Labour Cost (20%) which sits under cost of sales.
3 This triggers it to appear in CIS reports etc however also causes it to go into COS rather than WIP.

Thanks (0)
to awoodj
19th Oct 2017 17:27

Hmmmm - it's a bit like a stock control system for CIS, is it not ?

Do you do this with the materials ?

If not, I can't see the point. And I think you'll have trouble operating it without some bespoke changes to your software.

Thanks (0)
avatar
19th Oct 2017 20:53

sounds like its complicated because you are making it so

clear books is spot on

the Labour & materials are both cost of sale items in the profit and loss account

they only become work in progress if the project is still in progress at the company's year end.......

Thanks (0)
to ohgoodgodno
19th Oct 2017 21:47

The problem is that the OP wants the accounting system to keep a track of WIP whilst continuing to carry out its more traditional accounting function.

Thanks (0)
avatar
to lionofludesch
20th Oct 2017 08:25

lionofludesch wrote:

The problem is that the OP wants the accounting system to keep a track of WIP whilst continuing to carry out its more traditional accounting function.

clearbooks is a great bit of kit

each development could be set up as a project, allowing a seperate report to be run to see the exact costs incurred to date and therefore the WIP values....simples

Thanks (0)
to ohgoodgodno
20th Oct 2017 09:41

ohgoodgodno wrote:

lionofludesch wrote:

The problem is that the OP wants the accounting system to keep a track of WIP whilst continuing to carry out its more traditional accounting function.

clearbooks is a great bit of kit

each development could be set up as a project, allowing a seperate report to be run to see the exact costs incurred to date and therefore the WIP values....simples

Sure - but then those costs would have to be transferred back at the end of the project - analysed between purchases, subcontractor costs and whatever else. I'm not convinced that's easier.

Thanks (0)
avatar
By awoodj
to lionofludesch
20th Oct 2017 10:00

Agreed at the end of the project the costs need to be transferred but that's then a one time affair and if you've used project tracking then when the project is complete just take all totals in WIP accounts for that project, create a journal moving them from WIP to COS accounts and job done. Costs are then recognised in PnL at the point they should be and until then your PnL reflects what you'll be calculating your profit on at the end of the year. The one big flaw currently (unless it's changed) with Clearbooks is you can't report on the Balance Sheet split by Project Code. However in Xero you can create Balance Sheet reports split by tracking code so pulling out the figures for that final journal if it's all in the correct WIP location from the start is a simple task.

Thanks (0)
avatar
By awoodj
to lionofludesch
20th Oct 2017 09:18

The thing is, if you are looking at a PnL knowing full well many of the projects will cross financial years you'd ideally want the items under WIP by default rather than COS? Obviously you can adjust this by manual calcs and project tracking but why would you want to have to do that when it could just go in the "right" place by default? That way the PnL you look at by default shows a more accurate Profit figure which you can quickly refer to throughout the year without having to adjust for already known about WIP.

Thanks (0)
to ohgoodgodno
19th Oct 2017 21:48

Duplicated

Thanks (0)
avatar
20th Oct 2017 10:08

I think the problem you have is that you are trying to get management data out of your financial data

the substance of the transactions are that you've incurred profit and loss expenses - they are only WIP if in progress at year end

using projects on CB will give a full breakdown of costs as a P& L and show the exact WIP at any one point in time

Thanks (0)
avatar
By awoodj
to ohgoodgodno
20th Oct 2017 10:18

Fair point although I'm not sure from an end client point of view being able to quickly run a PnL and get a fairly accurate picture at that point in time is a bad thing to aim for.

Thanks (0)
to awoodj
20th Oct 2017 10:35

Personally, I think it's a lot of faff on a system that's not designed for the purpose.

I'd rather keep a track of WIP on a spreadsheet and keep the main records conventionally.

That's not to say that's definitively correct. But it's what I'd do.

What the OP needs to ask himself is "Am I keeping these records to track WIP ? Or to keep conventional accounting records ?"

Thanks (0)
avatar
By awoodj
to lionofludesch
20th Oct 2017 10:52

Which is fair comment again, my view is if I can easily kill two birds at one time then that's what I'll try and do as a default then fall back to alternatives if it's not possible. From what I can see a CIS "aware" WIP account(s) is all that is missing to do that but given it is missing then for now it's back to alternative methods.

Thanks (0)
Share this content