Financial reports help businesses see how they're doing and make better decisions. In this series, each article will explain a specific report, covering what it is, why a CPA needs it, how the numbers are calculated, and a simple example to show how it works. Whether it's about tracking income, managing costs, or checking how well your team is working, these articles will give you the basics to make sense of these important reports.
WIP Report
What’s in this Report?
Does include:
Archived or deleted team member time entries.
Does not include:
Inactive, archived, or deleted client time entries.
The Unbilled Revenue column includes a tooltip explaining, "Unbilled Revenue is based on the hourly rates you have supplied in Settings and includes billable expenses”.
Notes on calculations for this column:
Only calculates amounts for service items that have a rate type of hour
A dash (-) appears for service items with a rate type of item (aka a flat rate)
Includes a tooltip to explain that “Flat rates cannot be used in this calculation.”
See the flowchart below, detailing which rate is used in the calculation for fields in this column.
Add time back to the WIP report by permanently deleting the invoice it was applied to.
You can add time entries to invoices directly from the WIP report here:
We do not currently offer a negative WIP. Some users bill progress invoices and want a way to track their clients’ outstanding balances throughout the year/work term. If you are billing a flat rate, you can keep those time entries in the WIP report and link them to existing invoices later on.
Similarly, if you bill the client a flat rate but need to track how much revenue your individual team members are contributing, this again isn’t something we can track properly on the WIP report, but you could build out an Insights Report like this:
📊 What is a WIP (Work-in-Progress) Report?
A Work-in-Progress (WIP) Report is a financial document that tracks the value of work that has been started but not yet completed or billed. This report is crucial for businesses involved in long-term projects, such as construction, manufacturing, or professional services, where work spans multiple accounting periods. The WIP report shows the costs incurred so far, the revenue recognized, and the estimated cost to complete the project.
👨🏻💼 Why Would a CPA Need It?
A CPA would need a WIP report for several key reasons:
Revenue Recognition: The report helps determine how much revenue can be recognized for work completed during a specific period. This is important for accurate financial reporting, especially in industries where projects last over several months or years.
Cost Management: The WIP report provides insights into the costs incurred on a project to date, helping the CPA monitor budgets and ensure that projects are staying within financial constraints.
Profitability Analysis: By comparing the costs incurred to the revenue recognized, the CPA can analyze the profitability of ongoing projects and determine if they are on track to meet financial goals.
Cash Flow Management: The WIP report helps in managing cash flow by providing information on what has been earned versus what has been billed and collected. This helps the CPA ensure that the business has enough liquidity to cover ongoing expenses.
Financial Reporting Compliance: For companies that follow specific accounting standards (like GAAP or IFRS), the WIP report ensures compliance with rules on how and when to recognize revenue and expenses.
Project Performance Monitoring: The report allows the CPA and project managers to monitor the progress of each project and make adjustments if necessary to keep the project on schedule and within budget.
🔢 How is the Math Calculated for This Report?
The math behind a WIP report typically involves the following components:
Costs Incurred to Date:
This is the total amount of costs that have been incurred on the project up to the reporting date. It includes direct costs like materials, labor, and subcontractor fees, as well as allocated overhead costs.
Revenue Recognized to Date:
Revenue recognized is the portion of the project’s total revenue that can be recognized based on the percentage of work completed to date. This is calculated using the percentage-of-completion method.
Revenue Recognized = Total Contract Value × Percentage of Completion
Percentage of Completion = (Costs Incurred to Date / Total Estimated Costs) × 100
Billings to Date:
This is the total amount that has been billed to the client so far. It may not always match the revenue recognized, depending on the billing schedule and terms.
Underbillings or Overbillings:
If the revenue recognized exceeds the amount billed, it results in underbilling (work done but not yet billed). If the amount billed exceeds the revenue recognized, it results in overbilling (billing ahead of the work completed).
Underbilling = Revenue Recognized - Billings to Date
Overbilling = Billings to Date - Revenue Recognized
Estimated Costs to Complete:
This is the estimated cost required to complete the remaining work on the project.
Estimated Costs to Complete = Total Estimated Costs - Costs Incurred to Date
✏️ Example Calculation:
Let’s assume a company is working on a project with the following details:
Total Contract Value: $100,000
Total Estimated Costs: $80,000
Costs Incurred to Date: $40,000
Billings to Date: $45,000
Calculations:
Percentage of Completion:
Percentage of Completion = ($40,000 / $80,000) × 100 = 50%
Revenue Recognized:
Revenue Recognized = $100,000 × 50% = $50,000
Underbilling/Overbilling:
Since the Revenue Recognized ($50,000) is greater than Billings to Date ($45,000), we have an underbilling of $5,000.
Underbilling = $50,000 - $45,000 = $5,000
Estimated Costs to Complete:
Estimated Costs to Complete = $80,000 - $40,000 = $40,000
The WIP report would present these figures, showing the project’s financial status. The CPA can then use this information to ensure accurate financial reporting, manage cash flow, and provide insights into the project's progress and profitability.
✨ Example Scenario:
Problem - You want to track client balances and manage billed vs. unbilled time when billing progress invoices. Your challenges include:
Tracking Billed vs. Unbilled Amounts: No negative WIP option to show remaining unbilled time.
Revenue Attribution by Service and Team Members: You want to break down flat-rate invoices by service items (e.g., bookkeeping, payroll) and team member revenue.
Solution - There are 3 different ways you can solve this problem:
Time Entries for Past Employees: When a time entry logged by an inactive/deleted team is viewed/edited, it will not automatically re-assign the time entry to the user taking the action. It will still retain the team member name that logged the time.