Back to P120: Project Accounting Basic Scenarios

Lesson 7: Accounting for WIP Labor Costs in Fixed-Price Projects

Part 3: Budgets and WIP Costs

If you have long-term fixed-price projects with expenses posted to multiple financial periods, in accordance with generally accepted accounting principles (GAAP), you need to record these expenses to the same financial period as the income generated by the invoice. This lesson explains how you can move the expenses to the needed period by configuring and running allocations for these projects.

WIP Labor Costs in Fixed-Price Projects: General Information

According to the matching principle of generally accepted accounting principles (GAAP), the expenses related to the revenue have to be recorded to the same financial period as the revenue is. Expenses may happen in multiple financial periods before an invoice is created for the customer for those costs and the generated revenue can be recognized. To set up the accounting for work-in-progress (WIP) costs for a project so that it corresponds to the matching principle of GAAP, you can temporarily allocate the project costs to a WIP account group. You then reverse the allocation back to the initial labor account group in the financial period in which an accounts receivable invoice is generated for the project and the revenue is recognized.

Learning Objectives

In this lesson, you will learn how to do the following:

Configure an allocation rule to move project costs to a WIP account group
Configure a fixed-price project for allocating costs to the WIP account group
Temporarily allocate labor costs of the project to the WIP account group

Applicable Scenarios

If you have a long-term fixed-price project with expenses that have been posted to multiple financial periods but the project has not been billed yet, you may need to move the labor expenses to the same financial period as the income generated by the project invoice.

Creating the Allocation Rule

To temporarily allocate labor costs of a fixed-price project to a WIP account, you create an allocation rule on the Allocation Rules (PM207500) form. Using this allocation rule, the system creates allocation transactions based on the project transactions posted to a particular account group or groups, which moves costs from the original accounts to a WIP account. For this allocation rule, you specify the following settings on the Calculation Rules tab:

Allocation Method: Allocate Transactions With this setting, the system calculates the amount to allocate by using the underlying transactions and their amounts.
Create Allocation Transaction: Selected With this check box selected, the system creates the allocation transactions resulting from the step.
Select Transactions (Selection Criteria section): Non-Allocated Transactions The step is applied to project transactions that have not been allocated yet.
Branch (Selection Criteria section): The branch to be used as the filtering criteria for project transactions to be allocated.
Account Group From (Selection Criteria section): The account group that starts the range of account groups whose transactions are involved in the allocation step.
Account Group To (Selection Criteria section): The account group that ends the range of account groups whose transactions are involved in this allocation step. If you want to allocate the transactions posted to a single account group, specify this account group in the Account Group From box, and leave the Account Group To box empty.
If @Rate Is Not Defined (Calculation Settings section): Set @Rate to 0 You do not need to adjust the quantity and amount of the allocation transaction, so you will not use rates in the formulas of the allocation rule.
Quantity Formula (Calculation Settings section): =PMTran.Qty
Billable Qty. Formula (Calculation Settings section): =PMTran.BillableQty
Amount Formula (Calculation Settings section): =PMTran.Amount As the quantity, billable quantity, and amount of the allocation transaction, the system uses the corresponding values of the original transaction. You do not modify the quantity and amount of the original transactions and just move them to a temporary WIP account as is.
Description Formula (Calculation Settings section): The description of the created allocation transaction. You specify the following settings for the allocation rule on the Allocation Settings tab:
Post Transaction to GL (Transaction Options section): Selected With this check box selected, allocation transactions and reversing allocation transactions are posted to the general ledger.
Reverse Allocation (Transaction Reversal section): Never With this setting, the allocation transaction is not reversed automatically. A fixed-price project with a progress billing rule does not use allocation transactions for billing so you cannot use the allocation rule for creating reversing allocation transactions.
Account Origin (Debit Transaction section): Replace with a WIP account With this setting, the system generates an allocation transaction that debits the specified WIP account. The account must be mapped to a dedicated WIP account group that reflects the allocated amount and that you will later use in the billing rule.
Account Origin (Credit Transaction section): Debit Source With this setting, the system generates an allocation transaction that credits the debit account of the source transaction.

Configuring Fixed-Price Projects for Allocation On the Projects (PM301000) form, for a fixed-price project to be allocated, you assign the created allocation rule to the project tasks on the Tasks tab. You bill a fixed-price project with a billing rule with a Progress Billing step that does not use project transactions, including allocation transactions, for billing. To make the system automatically reverse created allocation transactions, which prevents the allocation transactions from aﬀecting the project balance aer you bill the project, you select the WIP account group to which you allocate the project costs in the Non-Billable WIP Account Group box on the Summary tab (Billing and Allocation Settings section) of the Project Tasks (PM302000) form.

Allocating and Billing Projects

You run the allocation process for a project by clicking Run Allocation on the More menu of the Projects
(PM301000) form while reviewing the project. As a result, the system creates allocation transactions based on the
project transactions selected by using the allocation rules specified for project tasks on the Tasks tab. To make
it possible to identify a batch of created allocation transactions, the system assigns the Allocation for <Project ID>
description to such a batch. For the project transactions that have been used as a source of the allocation, the
system selects the Allocated check box on the Project Transaction Details (PM401000) form.
When you bill a fixed-price project and create the accounts receivable document, the system automatically reverses
the allocation transactions posted to the account group selected in the Non-Billable WIP Account Group box
on the Summary tab (Billing and Allocation Settings section) of the Project Tasks (PM302000) form. Reversing
allocation transactions copy original allocation transactions and reverse the sign of the amount. Allocation
transactions are always reversed in the full amount. When you release the reversing allocation transactions, the
system clears the WIP account group and moves the allocated costs back to the original accounts in the financial
period the AR document created in.

WIP Labor Costs in Fixed-Price Projects: Implementation Activity

The following implementation activity will walk you through the process of configuring an allocation rule for work-
in-progress labor.

Story

Suppose that the SweetLife Fruits & Jams company needs to process projects in accordance with the GAAP
matching principle—that is, the expenses related to the revenue have to be recorded to the same financial period
as the revenue even if the expenses have been already posted to the system.
Acting as SweetLife’s administrative user, you will configure an allocation rule that can temporarily allocate the
project labor costs to a work-in-progress account group. To reverse the costs back you will not use the allocation
rule.

Configuration Overview

In the U100 dataset, the following tasks have been performed to support this activity:

On the Enable/Disable Features (CS100000) form, the Project Accounting feature has been enabled to support the project accounting functionality.
On the Account Groups (PM201000) form, the WIP account group has been created; the 12400 - Work in Progress account has been mapped to the account group.

Process Overview

You will configure an allocation rule for work-in-progress labor on the Allocation Rules (PM207500) form.

System Preparation

To prepare to perform the instructions of the activity, sign in to the system as system administrator by using the gibbs username and the 123 password.

Step: Configuring an Allocation Rule To configure an allocation rule used for allocating work-in-progress labor costs, perform the following instructions:

On the Allocation Rules (PM207500) form, create a new record.
In the Summary area, specify the following settings:

Allocation Rule: WIPFP
Description: WIP allocation

In the Allocation Steps table, add a row for the allocation rule step with the following settings:

Step ID: 10
Description: Labor

In the right pane, on the Calculation Rules tab, specify the following settings for the step selected in the le pane:

Allocation Method: Allocate Transactions
Create Allocation Transaction: Selected
Select Transactions (Selection Criteria section): Non-Allocated Transactions
Account Group From (Selection Criteria section): LABOR
Account Group To (Selection Criteria section): Empty Based on this setting and the previous setting, with this step, the allocation rule processes only transactions of the LABOR account group.
If @Rate Is Not Defined (Calculation Settings section): Set @Rate to 0
Quantity Formula (Calculation Settings section): =PMTran.Qty
Billable Qty. Formula (Calculation Settings section): =PMTran.BillableQty
Amount Formula (Calculation Settings section): =PMTran.Amount
Description Formula (Calculation Settings section): ='WIP allocation transaction'

In the right pane, on the Allocation Settings tab, specify the following settings of the step selected in the le pane:

Post Transaction to GL (Transaction Options section): Selected
Reverse Allocation (Transaction Reversal section): Never A fixed-price project with a progress billing rule does not use allocation transactions for billing so you will not use the allocation rule for creating of reversing allocation transactions.
Account Origin (Debit Transaction section): Replace with 12400 - Work in Progress With this setting, the system generates an allocation transaction that debits the specified account—that is, the 12400 - Work in Progress account, which is mapped to the WIP account group.
Account Origin (Credit Transaction section): Debit Source

Save the created allocation rule.
You have configured the allocation rule that can be used for allocating work-in-progress labor expenses of a cost- plus project. To allocate the expenses of a project by using this rule, you need to assign the rule to the project tasks.

WIP Labor Costs in Fixed-Price Projects: Process Activity

In this activity, you will learn how to temporarily allocate project expenses to a work-in-progress account group and bill the project without using allocation transactions as a basis for billing.

Story

Suppose that in January, the West BBQ Restaurant customer ordered training on operating juicers for 10 employees from the SweetLife Fruits & Jams company. The parties were not able to determine how many training sessions would be needed for the employees to master the use of the juicers. The SweetLife company agreed with the customer to provide as many training sessions as the customer needed in January and February, and that 2/25/2025, the customer would pay $80 for each employee who attended these training sessions. SweetLife's project manager has created a project for this work. Then suppose that 1/21/2025, a consultant of SweetLife provided eight hours of training and logged the time spent by creating and releasing a time card in Acumatica ERP. All 10 of the customer's employees attended that training session, and no more training sessions were needed in February. Acting as SweetLife's project accountant, you need to bill the customer, and you want the project expense incurred in January to be recorded in the same financial period as the project revenue—that is, in February. You will allocate the project expenses and bill the project.

Configuration Overview

In the U100 dataset, the following tasks have been performed to support this activity:

On the Enable/Disable Features (CS100000) form, the Project Accounting feature has been enabled to support the project accounting functionality.
On the Projects (PM301000) form, the WESTBBQ6B project has been created an the TRAINING task has been created for the project.
On the Account Groups (PM201000) form, the WIP and LABOR account groups have been created; also, the 12400 - Work in Progress account has been mapped to the WIP account group.
On the Allocation Rules (PM207500) form, the WIPPROGRESS allocation rule has been created. This allocation rule will be used to allocate project transactions that represent a particular type of expenses to the WIP account group.
On the Billing Rules (PM207000) form, the PROGRESS billing rule has been created. The billing rule has been configured for progress billing and has been assigned to the TRAINING task of the WESTBBQ6B project.
On the Employee Time Cards (EP305000) form, the 0000001 time card, reflecting the work of Pam Brawner on the WESTBBQ6B project, has been created. The time card has been also released and the PM00000019 batch of project transactions that corresponds to the time card has been created.

Process Overview

In this activity, you will first specify the allocation rule, the billing rule, and the non-billable WIP account group for the project task on the Project Tasks (PM302000) form. You will review existing project transactions to be allocated on the Project Transaction Details (PM401000) form and then perform allocation for the project on the Projects (PM301000) form. On the same form, you will bill the project and release the AR invoice created as a result of the billing on the Invoices and Memos (AR301000) form. The system will create the reversing allocation transactions that you review on the Project Transaction Details form and release on the Project Transactions (PM304000) form.

System Preparation

To sign in to the system and prepare to perform the instructions of the activity, do the following:

Sign in to the system as project accountant by using the brawner username and the 123 password.
In the info area, in the upper-right corner of the top pane of the Acumatica ERP screen, make sure that the business date in your system is set to 2/25/2025. If a diﬀerent date is displayed, click the Business Date menu button, and select 2/25/2025 on the calendar. For simplicity, in this activity, you will create and process all documents in the system during this business date.

Step 1: Configuring the Project for Allocation and Allocating the Project To configure the project for allocation and allocate project transactions, do the following:

On the Projects (PM301000) form, open the WESTBBQ6B project and do the following: a. In the table on the Tasks tab, click the TRAINING link in the Task ID column. The system opens the project task on the Project Tasks (PM302000) form. b. In the Billing and Allocation Settings section on the Summary tab, specify the following settings.

Allocation Rule: WIPPROGRESS
Non-Billable WIP Account Group: WIP Notice that the PROGRESS billing rule is selected in the Billing Rule. You do not need to change the progress billing rule because the allocation transactions are not used in the billing of fixed-price projects. c. On the form toolbar, click Save to save your changes to the project task settings and close the form.

On the Project Transaction Details (PM401000) form, in the Selection area, select WESTBBQ6B in the Project box. In the table, review the only project transaction and notice the values in the following columns:

Fin. Period: The transaction has been posted to the 01-2025 financial period.
Debit Account Group: The transaction has debited the LABOR account group.
Allocated: This check box is cleared, indicating that the transaction has not been allocated.
Orig. Doc. Type: The value in this column is Time Card because the transaction has been created based on the release of the time card created for Pam Brawner for the WESTBBQ6B project.
Billed: This check box is cleared, indicating that the transaction has not been billed.

On the Projects form, open the WESTBBQ6B project. On the Balances tab, review the project balance. Notice that the actual amount of project expenses ($360) is posted to the LABOR account group.
On the More menu, under Billing and Allocations, click Run Allocation to perform the allocation for the selected project. When the allocation is completed, on the Balances tab, review the project balance again. Notice that the actual amount of project expenses has been moved from the LABOR account group to the WIP account group.
On the Project Transaction Details form, in the Summary area, make sure WESTBBQ6B is selected in the Project box. In the table, notice that a new transaction has appeared. Review the transaction, noticing the values in the following columns:

Date: The date of the allocation transaction is the same as the date of the original transaction. Thus, the allocation transaction has been posted to 01-2025, which is the same financial period to which the original transaction was posted.
Debit Account Group: The allocation transaction has debited the WIP account group.
Credit Account Group: The allocation transaction has credited the LABOR account group, which is the debit account group of the original transaction.
Allocated: This check box is now selected for the original transaction with the Time Card original document type, indicating that the transaction has been used as the source for allocation. For the allocation transaction, the check box is cleared.
Orig. Doc. Type: The value in this column is Allocation for the new transaction, which means the transaction is an allocation transaction.
Billed: This check box is cleared, indicating that the allocation transaction has not been billed yet along with the original transaction.

Step 2: Billing the Project To update the progress of project completion and bill the project in an amount that corresponds to the progress, do the following:

On the Projects (PM301000) form, open the WESTBBQ6B project.
On the Revenue Budget tab, specify 100.00 in the Completed (%) column of the revenue budget line. That is, the project has been entirely completed. Notice that the system calculates the Pending Invoice Amount in the row ($800).
On the form toolbar, click Save to your changes to the project, and then click Run Billing. The system creates an AR invoice and opens it on the Invoices and Memos (AR301000) form.
In the Summary area of the form, make sure that the Date of the invoice is 2/25/2025, which is the current business date, and that the Post Period is 02-2025.
On the form toolbar, click Remove Hold to assign the accounts receivable invoice the Balanced status, and then click Release to release the AR invoice.
Open the Project Transaction Details (PM401000) form, and in the Selection area, select WESTBBQ6B in the Project box. In the table, notice that two new transactions have been created, as shown in the following screenshot.
```
    Figure: Project transactions of the WESTBBQ6B project

    Review the transactions, noticing the values in the following columns.
```

Orig. Doc. Type: The value in this column is WIP Reversal and AR Invoice for the new transactions, which means that the first one is a reversing transaction and the second one originates from the released invoice.
Date: The date of the new transactions is the invoice date. Thus, the transactions have been posted to the 02-2025 financial period.
Debit Account Group: The transaction with the WIP Reversal original document type has cleared the WIP account group (debited the account group with an opposite amount) and the LABOR account group (credited the account group with an opposite amount)). This reversing transaction was created on project billing to clear the WIP account group selected for the project task. The transaction with the AR Invoice original document type has debited the REVENUE account group with the amount calculated with the billing rule of the project task. The transaction was created on release of the AR invoice.
Billed: This check box is cleared for all the transactions, including the original and the allocation transactions, indicating that the transactions have not been used in billing because you have billed the project for progress.
Released: This check box is cleared for the reversing transaction with the WIP Reversal original document type, indicating that it has not been released yet.

Release the reversing allocation transaction as follows: a. In the table, in the row with the WIP Reversal original document type, click the link in the Ref. Number column to open the project transaction. b. On the form toolbar of the Project Transactions (PM304000) form, which opens, click Release. The system releases the project transaction.
On the Projects form, open the WESTBBQ6B project, and on the Balances tab, review the project balance. Notice that the actual amount of project expenses ($360) has been moved back from the WIP account group to the LABOR account group. The actual amount of the REVENUE account group has been updated. Part 4: Cost Commitments | 54