Profit and loss in contracting business

[Snorkel]

Hello, we are in the painting business and we have many projects on at any one time. Our projects last from between 1 week to around 1 year in some cases.

Currently we do a monthly profit and loss report that is taken with the following information;
Sales- from invoices
WIP movement- from project software that tracks the project opening and closing % complete and then times that by the value.
COGS- from invoices sent in for the month.

The issue i have is while our sales and WIP movement are very accurate, the COGS value is taken from invoices that have been sent in often months after they were actually incurred. For example Sales and WIP would relate to September projects and the invoices would relate to projects done in April, May, June, July and August.

Short of just hurrying up suppliers to invoice the project (which we have done), is there any way to make sure the COGS on the P$L relate to the monthly they were actually incurred? I wonder if it could be done somehow from Purchase orders or off the job costing or something.

Glad of any help.

 

[kirby]

What is going on is you are on accrual basis for your revenues but not for your expenses. On the revenue side, you figure out the percentage of completion each month and record that into income. But you do not do the same thing on the expense side.
So if you want to do the same on the expense side you would have to figure out the expected expense (same as you do for expected revenue) for a project and then apply the same percentage you now use for the revenue side of the project to the expense side. That will keep the revenue to expense ratio in line. But of course at the end of the project you need to remove those expense accruals and "true up" to the actual expenses.
But the kicker is this - realize right now you record revenue as you estimate that it is earned but not the expenses. So if you were to "catch up" and record your estimate for all those unrecorded expenses you might now show a whopping loss.
So proceed carefully with this and try some "pro forma" analysis before you go down this road....

 

[Fidget]

The issue i have is while our sales and WIP movement are very accurate, the COGS value is taken from invoices that have been sent in often months after they were actually incurred. For example Sales and WIP would relate to September projects and the invoices would relate to projects done in April, May, June, July and August.

Short of just hurrying up suppliers to invoice the project (which we have done), is there any way to make sure the COGS on the P$L relate to the monthly they were actually incurred? I wonder if it could be done somehow from Purchase orders or off the job costing or something.

Glad of any help.

|f you're keeping tabs on when purchases are made and what they're for, can't you just manually adjust the cogs figure? Presumably your project management software will export to excel, so you could manually adjust it. It's not an ideal solution, but short of investing in systems that will do it all for you, it's an option.