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There are multiple accounting methods supported by CMiC Enterprise. These include the following accounting methods: billings and cost, T&M WIP accrual, and completed contract.
Billings and Cost – Accounting Method
This accounting method applies all billing transactions directly to revenue accounts and all cost transactions directly to expense accounts. A work in process (WIP) adjustment transaction is posted each month for the difference between the total earned revenue amount on the job and the total amount billed on the job, based on the estimated percent complete value. This transaction is posted as an accrual and automatically reverses in the next period.
The following illustrates how costs and billing transactions are applied and revenue recognized using the billings and cost method, with a WIP adjustment transaction.
1. Job Setup for the Previous Month
| Contract: | $110,000 |
| Total Budget: | $100,000 |
| Actual Costs: | $50,000 |
| Actual Billings: | $60,000 |
| Percent Complete: | 50% |
Cost transaction applied last month:
| DR | Expenses | $50,000 |
| CR | Accounts Payable | $50,000 |
Billing transaction applied last month:
| DR | Accounts Receivable | $60,000 |
| CR | Revenue | $60,000 |
WIP adjustment (50%): over billing
The following illustrates the calculation for computing the WIP adjustment:
| (Percent Complete x Contract) - Total Billings to Date = WIP Adjustment | ||
| (50% x 110,000) - 60,000 = -5,000 | ||
| DR | Accumulated Billings (Revenue) | $5,000 |
| CR | Accumulated Billings Adjustment (Unearned Revenue) | $5,000 |
Month End Summary:
The WIP adjustment is an accrual, and should be reversed out at the beginning of the next period. The balance sheet will show a $5,000 credit in the unearned revenue. The income statement will show a $5,000 profit.
The following illustrates the calculation for computing the profit:
| Revenue | + WIP Adjustment | - Expenses | = Profit |
| 60,000 | + (-5,000) | - 50,000 | = 5,000 |
2. Job Setup for the Current Month
| Contract: | $110,000 |
| Total Budget Costs: | $100,000 |
| Actual Costs Spent to Date: | $80,000 |
| Actual Billings: | $75,000 |
| Percent Complete: | 80% |
Cost Transactions
| DR | Expenses | $30,000 |
| CR | Accounts Payable | $30,000 |
Billing Transactions
| DR | Accounts Receivable | $15,000 |
| CR | Revenue | $15,000 |
WIP Adjustment (80%): Under Billing
The following illustrates the calculation for computing the WIP adjustment:
| (Percent Complete x Contract) - Total Billings to Date = WIP Adjustment | ||
| (80 x 110,000) - 75,000 = 13,000 | ||
| DR | Accumulated Costs (WIP) | $13,000 |
| CR | Accumulated Billings (Revenue) | $13,000 |
Month End Summary
The WIP adjustment is an accrual, and will be reversed out at the beginning of the next period. The balance sheet shows a $13,000 debit in the WIP account. The income statement shows $8,000.
Profit
The following illustrates the calculation for computing the profit:
| Revenue | + WIP Adjustment | - Expenses | = *Profit |
| 75,000 | + (13,000) | - 80,000 | = 8,000 |
Completed Contract – Accounting Method
Using this method, revenues and expenses on jobs are recorded against specific accounts only when the job is completed. All expenses and billings prior to completion are recorded to the work in process and unearned revenue accounts.
The following illustrates how costs and billings transactions are applied and revenue recognized using the completed contract method:
1. Job Setup
| Contract: | $110,000 |
| Actual Costs Spent to Date: | $100,000 |
Cost Transactions
| DR | WIP Asset Costs | $100,000 |
| CR | Accounts Payable | $100,000 |
Billing Transactions
| DR | Accounts Receivable | $110,000 |
| CR | Unearned Revenue | $110,000 |
Close Job
For Actual Costs Spent to Date:
| DR | Expenses | $100,000 |
| CR | WIP Asset Costs | $100,000 |
For Completed Contract:
| DR | Unearned Revenue | $110,000 |
| CR | Revenue | $110,000 |
The income statement will show a $10,000 profit. The following illustrates the calculation for computing the profit:
| Revenue | - Expenses | = Profit |
| 110,000 | - 100,000 | = 10,000 |
T&M WIP Accrual – Accounting Method
The T&M WIP accrual method provides the ability to do WIP adjustment accruals for T&M type jobs before the contract is completed. All programs will treat the method the same as completed contract including the closing of the contract.