Accounting for Projects
In accounting terms Workbench is a subsidiary Job Costing ledger to the General Ledger, with all Workbench Cost and Revenue codes mapping to General Ledger accounts.
The document explains the Workbench transactions and the resulting General Ledger entries. It is important to consider these as part of your Workbench implementation as they impact your General Ledger P&L and Balance Sheet Reporting.
It is intended that Workbench supports in detail the Gross Profit reporting in your company P&L so all Cost and Revenue transactions in Workbench should be mapped to the appropriate section of the GL. This is essential if you want the Job Profits reported in Workbench to agree to the P&L Gross Profit.
In considering job costing Key Performance Indicators (KPI’s) Workbench focuses on the following:
· Job Profitability (can the business complete jobs profitably)
· Labour Productivity (has the business sufficient work to fully utilise the available Labour resource).
· Plant Utilisation (has the business sufficient work to fully utilise the available Plant resource).
This is illustrated in the following P&L format and is achieved through the following month end Workbench Journals:
· Progress Claim Accrual for claims not yet certified and therefore not yet posted to the GL.
· Work In Progress (accrue or defer revenue to reflect profit earned to date)
· Labour Journal (a reallocation of direct labour costs based on actual hours booked to jobs via Timesheets. This recovery rate may include Overhead Recovery).
· Plant Recovery Journal (the internal charge for Plant used on Jobs based on actual time booked).
Integration of Source Transactions from Workbench to the Financials
Supplier Invoices/Credits
Debit Project Material Costs
Debit Input GST
Credit Accounts Payable
Docket Accruals
Debit Project Costs
Credit Docket Accruals
AP Invoice offset against Docket Accrual
Debit Docket Accrual (any difference is posted to the source of the original accrual)
Debit Input GST
Credit Accounts Payable
Subcontractor Claims
Debit Project Subcontractor Costs
Debit Input GST
Credit Retentions Payable
Credit Accounts Payable
Subcontractor Retention Release
Debit Retentions Payable
Debit Input GST
Credit Accounts Payable
Customer Billing
Debit Accounts Receivable
Credit Revenue
Credit Output GST
Progress Claims
Debit Accounts Receivable
Debit Retentions Receivable
Credit Project Revenue
Credit Output GST
Retention Claims
Debit Accounts Receivable
Credit Retentions Receivable
Credit Output GST
PO Receipts/Inwards Goods
Stock Management
The accrual of Stock Receipts/Inwards goods is necessary to establish a value for stock that is immediately available to be consumed by jobs before the Supplier invoice is received and processed.
In the extreme example, stock is received for the first time so there is currently no value against this item, we immediately consume some of this stock on a job and sell the job on an input basis, all before the Supplier invoice is processed. On this basis, the only practical approach is to accrue the cost on receipt and set the stock cost because it becomes totally impractical for the system to “back cost” as part of the Supplier invoice processing.
The accounting entries are explained below.
PO Inwards Goods:
Debit Stock
Credit Purchase Clearing
Supplier Invoice:
Debit Purchase Clearing
Credit Accounts Payable
Debit/Credit Purchase Variance with any difference between the Accrual and AP Invoice (P&L Account)
As with any accrual process, we need to assume that PO values are relatively accurate, and any purchase variance is not significant in financial terms.
Month End Journals from Workbench to the Financials
Progress Claims Accruals
Debit Progress Claim Accruals
Credit Project Revenue
Labour Journal
Debit Project Labour Costs
Credit Labour Recovered.
Plant Journal
Debit Project Plant Costs
Credit Plant Recovered
WIP Journal
Accrued Revenue
Debit WIP
Credit Accrued Revenue
Deferred Revenue
Debit Revenue
Credit WIP/Deferred Revenue
Work In Progress Methods
Workbench has the following WIP Methods.
For Lump Sum type Projects we recommend recognising profit on a % complete of the Forecast Final Profit. The calculation is as follows:
% Complete = Actual Costs to Date/Forecast Final Costs.
Forecast Final Profit = Budget Revenue – Forecast Final Cost.
Recognised Revenue = Actual Costs to Date + (Forecast Final Profit x % Complete)
WIP Adjustment = Actual Billing – Recognised Revenue (accrue or defer revenue)
Note – Billing is assumed to be Gross (before Retention).
For Lump Sum type Projects where it is not practical to do a Workbench Forecast Costs to Complete we recommend recognising profit on a Budget Margin %. The calculation is as follows:
Recognised Revenue = Actual Costs to Date x 1. Budget Margin %
WIP Adjustment = Actual Billing – Recognised Revenue (accrue or defer revenue)
For Schedule Of Rates Projects
Accrue Revenue based on the value of unclaimed Outputs.
For Cost Plus Jobs
Accrue Revenue based on unbilled Costs (valued at cost or chargeout)