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Work in progress and cost of services

Do I carry forward the costs of services paid for but not yet invoiced to client?

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I'm preparing FRS105 accounts for a business that provides a service to its customers and in doing so incurs several service costs (no products involved). My client does not invoice it's own customer upfront or mid-way, only once the full service has been provided.

At year-end there are several service costs incurred relating to contracts not delivered until after year-end. Are such costs carried forward as Work in Progress (Dr. B/Sheet, Cr. P&L)?


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06th Sep 2018 12:32

Hi - have a look at sections 18.13 - 18.15 of the FRS

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06th Sep 2018 12:44

Yes of course you carry them forward, but I’m not sure they are WIP. Are they specific disbursement invoiced on to the client at a later date? Or are they just costs incurred by your client in providing its service to the client?

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06th Sep 2018 13:34

Thanks for both your replies. Yes, Reporting Standard does lead me to carry forward but I too was unsure if WIP. And, if not WIP, Stock??
No physical products here just services.
John - they’re a combination of disbursements and costs of services incurred in delivering clients service sold. All relate directly to job which end up being delivered / provided in one single day.

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to clark.hall
06th Sep 2018 14:39

Definitely not stock. You can’t pick them up and throw them around can you?

Either WIP or trade debtors. For the disbursements I would incline to the latter.

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06th Sep 2018 13:47

Hi again - the standard actually requires you to recognise revenue earned to the date of the accounts, ie on partially completed contracts, but there may be a reason why you just carry forward the costs.

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06th Sep 2018 14:41

Thanks again. It's me, not you!

You've both help me think this through a little more clearly - and after checking with my client I now understand that - in the case a job is cancelled before its delivery the customer is liable to repay my client for his costs and time incurred to date.

Therefore I believe that I should now leave alone the costs and provide for a sales WIP adjustment: Dr. WIP, Cr. sales

I will compute sales WIP adjustment based on Long-term contracts principles:
Total contract revenue x % of completion = Revenue to be recognised at the period/year end

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