Engineering company, we normally do annual accounts, however we are now going to be helping them with their monthly management accounts to get a better handle on the performance
The company does work, each job worth around say 8K. Gross margin is 28% after materials and subcontract labour. Subcontractors paid weekly, materials paid 45-60 days.
Client is now providing a handwritten "WIP statement" which reads: I.e. Job value 8,000, 75% complete, billed so far Nil, WIP = 6,000
Client is insisting that 28% of the 6,000 WIP should be accounted for i.e. Cr sales 6K, Dr balance sheet 6K under WIP.
I would just add the full 6,000 WIP to sales and debit the balance sheet WIP account on the basis that most of the associated costs have already been paid/invoiced (subbies & materials), so to NOT show the 6K in sales would understate the profit.
Do people agree?