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Design Services

We can design and implement procedures to assist you in operating your business more efficiently using the information QuickBooks® can provide. An example of such a design is our procedure to expand its work in process functions to include inventory transfer costing.

Please contact us to solve your application specific problem, you will be glad you did, we have a reputation for paying for ourselves.

The following is an example of extending the capabilities of QuickBooks® created by our office:

To Track Work In Process In QuickBooks®

This procedure was designed to work around the inability of older versions of QuickBooks® to track work in process via the transfer of inventory. Those versions of QuickBooks® could not account for work in process (WIP) for payroll and invoice costs out of the box, nor transfer cost out of its inventory system into WIP. New versions including Contractor editions have resolved this problem. If you are using an old version, this article might still apply to you.

Theory of Operation

Utilizing existing QuickBooks® functions we have designed the following
accounting system and QuickBooks® procedures to mimic a work in process accounting function. The key element is to utilize the accounts receivable functions as a WIP inventory and provide the needed information for management decisions. This works quite well given the following limitations. The reason it works is that Accounts Receivable is very similar to WIP, both to accumulate costs and will reduce inventory when transferred (invoiced) to WIP (i.e. Accounts Receivable). This can be modified for your special needs.

Problems result in using an Accounts Receivable system to function as a WIP system.

1. QuickBooks® pricing matrix is single tier, thus in order for the inventory item to transfer at cost, the matrix must be zero. The patch for this problem is described below.
2. By using two general ledger accounts, one for real Accounts Receivable and the other for WIP, unique report problems are created. For example, an Accounts Receivable aging report should not include WIP; however, it would be helpful to see billed and unbilled work beside each other. Patches for these problems are also described below.
3. The WIP Inventory must be reduced when it is billed out. The normal Accounts Receivable system records cash deposits and reduces customer receivables. The exact same procedure is used, but the cash account is now labeled WIP COS which is located in the balance sheet. With a simple adjusting journal entry, that account can be transferred to the income statement. Note, however, that invoicing the customer and relieving WIP inventory is a two step process.
4. Income statement layout becomes critical in order to show, in a logical and understandable statement, the unique allocation entries which are grossed up in the income statement rather than netted in other WIP accounting systems.

Details of this technique follows.

Before beginning, Create these new accounts:

Add an additional "Class" of "WIP".

Under lists/customer types, add new customers types of "Regular" and "WIP".
It will be necessary to edit each accounts receivable customer to insert "Regular" in the "Customer Type" column of the "Other Info" tab. As the WIP accounts are created, WIP should be inserted in the "Customer Type" column of each of these new accounts. This is necessary to resolve report problems caused by a combined Accounts Receivable and WIP subsidiary.

A. Accumulating Costs In WIP Inventory By Customer Job

1. Lists/Items/Activities/Change Prices

Item Type - Inventory Part
Calculate Prices
Select items to change
Mark up checked sales items by 0% based on unit cost, click "Apply"
2. Set up an additional account ("Job") for customer to contain WIP inventory, account name beginning with WIP and then job number.
3. Accumulate WIP cost by preparing an invoice for WIP items by customer job (materials and labor).
4. Make sure "Account" at top indicates "WIP-Inventory"
5. When invoice finished click "OK"
6. Entry that is created is:

Part 1 - Stock removed from inventory and expensed to Cost of Sales via the inventory system.

Part 2 - By invoicing materials at cost, the accounts receivable system creates a credit offsetting, dollar for dollar, the above entry, thus the effect on income is zero.

CAUTION: #1 - #3 will have to be repeated each time WIP invoices are created. It may be advantageous to leave inventory list at the 0% and change for actual billing. However, by using a Windows 95 macro, the keystrokes necessary to reset mark-ups to original value could be implemented to ease this task for complex pricing schemes.
B. Step 1 in billing customer, relieve WIP-Inventory for amount, at cost, to be billed in Step 2 1. Activities/Receive Payments -

Make sure "Account" at top indicates "WIP-Inventory"
Receive payment for amount in balance in WIP account for customer at such date
Be sure to change "Deposit To" to "Released WIPLLCS". This will clear the
Customer's WIP-Inventory amount and debit "Released WIPLLCS" account

2. At the end of each month you will need to zero the balance sheet "Released WIPLLCst of Sales" account into the income statement "Cost of Sales-WIP" account:
DR. #6100 Cost of Sales -WIP - (Commercial or Residential Class)
CR. #1025 Released WIPLLCS Amount = Account balance in "Released WIP COS" account C. Billing customers - Step 2 in invoicing customers 1. Repeat "A" "1" above except
Mark up selected items by applicable % based on unit cost
as follows:

Lists/Items/Activities/Change Prices
Item Type - Inventory Part
Calculate Prices
Select items to change
Mark up selected items by applicable % based on unit costs, click "Apply" 2. Prepare as regular (true) invoice and credit to regular Accounts Receivable (be sure "Account" at top indicates "Accounts Receivable"), not WIP Inventory.

The amount should be computed as a mark-up of the amount released from WIP in Step B. 1. above for WIP jobs. Otherwise you may bill for inventory items not yet released to WIP (refer to Item A. 3. above).

To create an Accounts Receivable aging report:
 

Reports/A/R Reports/Aging Summary
Choose date for summary

To produce reports for the regular accounts and WIP accounts, you should filter the report by "Customer Type" and choose either "Regular" for the regular accounts receivable aging, or "WIP" for the unbilled work. Print each report. This will enable the user to see billed and unbilled work beside each other.

Example of How To Format Income Statement:

Problem:

At the end of each month it will be necessary to make an adjusting entry to remove WIP entries:

1. Set up new customer account titled - Clear WIP for AJEs, Customer Type-
WIP and Class-WIP.

2. Run a Profit and Loss statement for the month; filter each sales account for
WIP customers.

3. Adjusting entry will be:

Run a new Profit and Loss report, filtered by Customer Type-WIP and
Class-WIP after the above entry has been made to insure that all amounts
have been removed from the Sales accounts. Sales accounts should be zero
after the above adjusting entry.

Reminder -- Be sure to make the adjusting entry in Item B. 2. at the end of each month to zero the balance sheet "Released WIPLLCst of Sales" account.