Back to P200: Project Accounting Extended Scenarios

Lesson 7: Accounting for WIP Costs in Cost-Plus Projects

Part 4: Billing Rates and WIP Costs

Your organization may have long-term cost-plus projects with expenses posted to multiple financial periods. In accordance with generally accepted accounting principles (GAAP), you may want to record these expenses to the same financial period as the income generated by the invoice. In this case, you can move the expenses to the needed period by allocating the projects. This lesson explains how in Acumatica ERP, you can move the expenses to the needed period by configuring and running allocations for these projects.

WIP Labor Costs in Cost-Plus 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 cost-plus project for allocating costs to the WIP account group
Temporarily allocate costs of the project to the WIP account group

Applicable Scenarios

If you have a long-term cost-plus 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 expenses to the same financial period as the income generated by the project invoice.

Creating the Allocation Rule

To temporarily allocate the costs of a cost-plus project to a WIP account, you create an allocation rule on the Allocation Rules (PM207500) form. By using this allocation rule, the system creates allocation transactions based on the project transactions posted to a particular account group or specific 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): On AR Invoice Generation or On AR Invoice Release With this setting, the allocation transaction is reversed automatically when an AR invoice is generated based on the allocation transactions or when this AR invoice is released, respectively.
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 Cost-Plus Projects for Allocation On the Projects (PM301000) form, for a cost-plus project to be allocated, you assign the created allocation rule to the project tasks on the Tasks tab. To be able to use the created allocation transactions in project billing, you need to modify the existing billing rule that is used for the project or create a new one on the Billing Rules (PM207000) form. For that billing rule, you create a Time and Material step that processes allocated transactions posted to the WIP account group. Except for the account group, the settings of this step are the same as the settings of the billing rule step that is used to process the original transactions, which are the source of the allocation transactions. On the Tasks tab of the Projects form, the modified or created billing rule must be assigned to project tasks.

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 cost-plus project, the system automatically reverses the allocation transactions on creation or
release of the accounts receivable document, depending on the settings of the corresponding allocation rule.
Reversing allocation transactions copy original allocation transactions and reverse the sign of the amount.
Allocation transactions are always reversed in the full amount. The reversing 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 Cost-Plus 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 is, even if the expenses have been already posted to the system. Acting as an administrative user of
SweetLife, you will configure an allocation rule that can temporarily allocate the project labor costs to a work-in-
progress account group and then reverse the costs back to the initial labor account group in the financial period in
which the revenue is recognized—that is, an AR invoice is released.

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, add a new record.
In the Summary area, specify the following settings:

Allocation Rule: WIPCP
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 for the step selected in the le pane:

Post Transaction to GL (Transaction Options section): Selected
Reverse Allocation (Transaction Reversal section): On AR Invoice Release With this setting, the allocation transaction is reversed automatically when an AR invoice generated based on this allocation transaction is released.
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 Cost-Plus Projects: Process Activity

In this activity, you will learn how to temporarily allocate project expenses to a work-in-progress account group and then use the allocation transactions for billing.

Story

Suppose that in January, the West BBQ Restaurant customer ordered training for new employees on the operation of juicers from the SweetLife Fruits & Jams company. The customer did not know the exact number of employees or the number of training sessions that would be needed. The SweetLife company agreed with the customer to provide as many training sessions as the customer needed in January and February. Further, both parties agreed that on 2/25/2025, the customer would pay for all the hours of training sessions that took place. The project manager of SweetLife created a project for this work. Then suppose that on 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. In February, no additional training sessions were needed. 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 WESTBBQ6A project has been created and the TRAINING task has been created for the project.
On the Account Groups (PM201000) form, the WIP and LABOR account groups have been created; the 12400 - Work in Progress account has been mapped to the WIP account group.
On the Allocation Rules (PM207500) form, the WIPTM allocation rule has been created. This allocation rule will be used to allocate project transactions that represent a particular type of expenses to the 12400 - Work in Progress account.
On the Billing Rules (PM207000) form, the WIP billing rule has been created, which processes the allocated transactions from the WIP account group during the project billing.
On the Employee Time Cards (EP305000) form, the 0000001 time card, reflecting the work of Pam Brawner on the WESTBBQ6A project, has been created. The time card has also been 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 and billing rule 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.

System Preparation

To prepare to perform the instructions of this activity, do the following:

Sign in to the system as the project accountant by using the brawner username and the password provided in the class.
In the info area, in the upper-right corner of the top pane of the Acumatica ERP screen, click the Business Date menu button, and select 2/25/2025 on the calendar.

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 WESTBBQ6A 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 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: WIPTM
Billing Rule: WIP
Non-Billable WIP Account Group: Empty c. Save your changes, close the form, and return to the WESTBBQ6A project on the Projects form.

On the Cost Budget tab, click the only line in the table, and on the table toolbar, click View Transactions. On the Project Transaction Details (PM401000) form, which opens, review the only project transaction, and notice the values in the following columns:

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 WESTBBQ6A project.
Fin. Period: The transaction has been posted to the 01-2025 financial period.
Debit Account Group: The transaction has debited the LABOR account group.
Billed: This check box is cleared, indicating that the transaction has not been billed yet.
Allocated: This check box is cleared, indicating that the transaction has not been allocated yet.

Close the form and return to the WESTBBQ6A project on the Projects form.
On the Balances tab, review the project balance. Notice that the actual amount of the project expenses ($360) is currently 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 the project expenses has been moved from the LABOR account group to the WIP account group.
On the Cost Budget tab, click the only line in the table, and on the table toolbar, click View Transactions. On the Project Transaction Details (PM401000) form, which opens, notice that the second transaction has appeared. Review the transactions, noticing the values in the following columns:

Orig. Doc. Type: The value in this column is Allocation for the new transaction, which means the transaction is an allocation transaction.
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.
Billed: This check box is cleared, indicating that the allocation transaction has not been billed yet (as is the case with the original transaction).
Allocated: This check box is selected for the original transaction with the Time Card original document type, indicating that the transaction has been used as the source for allocation.

Close the form and return to the WESTBBQ6A project on the Projects form.

Step 2: Billing the Project To bill the project, do the following:

While you are still reviewing the WESTBBQ6A project on the Projects (PM301000) form, click Run Billing on the form toolbar. 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 invoice the Balanced status, and then click Release to release the AR invoice.
Open the Project Transaction Details (PM401000) form; in the Selection area, select WESTBBQ6A in the Project box, and make sure the other boxes are cleared. In the table, notice that two new transactions have been created (see the following screenshot).
```
   Figure: Project transactions of the WESTBBQ6A project

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

Orig. Doc. Type: The values in this column are Allocation Reversal and Invoice for the new transactions, which means that the first one is a reversing transaction for the allocation 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 Allocation Reversal original document type has cleared the WIP account group (debited the account group with an opposite amount) and debited the LABOR account group. This reversing allocation transaction, which moved the expenses back to the original account group, was created on release of the AR invoice, based on the Reverse Allocation setting of the allocation rule on the Allocation Settings tab of the Allocation Rules (PM207500) form. The transaction with the Invoice original document type has debited the REVENUE account group with the amount calculated with the billing rule of the project task.
Released: This check box is selected for all the transactions, including the transaction with the Allocation Reversal original document type, indicating that all the transactions have been released.
Billed: This check box is selected for the transaction with the Allocation original document type, indicating that the allocation transaction has been used in billing.

On the Projects form, open the WESTBBQ6A 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 and is now $450.
You have allocated project expenses to a work-in-progress account group and then performed billing based on the allocation transactions.