Why Construction Companies Should Use a WIP Schedule, ASC 606 & more
Being in the construction industry means working with many different individuals and organizations. With ASC 606 revenue recognition being the new standard, Cabbage can help your company better prepare with accurate work in progress & contracts in progress data,
In addition to clients and employees, companies must keep lenders, licensors, and subcontractors informed about the status of a project. One of the best ways to monitor progress is with a work-in-progress schedule.
A WIP schedule is a vital tool, but it can also be somewhat complicated to those who are new to it. Understanding how this schedule is used and why it is so important can help construction companies in the long run.
What is the Basis of a WIP Schedule?
A WIP schedule is designed to provide a more accurate view of a project’s profitability. While some people think that simply subtracting costs from revenue is all it takes to determine profit, accounts in the construction industry rely on the percentage-of-completion method to see how things are progressing.
Cost calculation is one of the main factors of a WIP schedule. By dividing costs incurred by estimated costs, the total will represent the percentage of estimated costs incurred. Once you know the percentage of a contract completed, that number can be multiplied by the contract price to determine how the project is progressing.
Why is a WIP Schedule Used?
A WIP schedule is used to give important parties information about your company and its projects. Things like underbilling or overbilling can be easily determined with a WIP schedule. For skeptical parties and uncertain partners, a WIP schedule provides them with the accurate data they need to stay involved in a project whether they’re supplying funding or capital.
A WIP schedule can also be used to track inefficiencies in the accounting processes of a business, showing whether certain costs are being ignored, duplicated, or listed inaccurately.
How to Improve Your WIP Schedule
A WIP schedule can be improved by adjusting contract prices and cost estimates as they change. Recording all expenses in the proper time period is important for keeping totals accurate, as is recording any changes or delays to billing. ‘
The final step to review a WIP schedule is to let a CPA check it for accuracy. Companies with dedicated accounting professionals can enjoy more accurate reporting, and get the most out of their WIP schedule.