Work in progress

[tahiri]

Suppose a customer places an order and pays a deposit. Three weeks later
construction of the item commences and takes say another week. Then the
completed item sits in the workshop for another week before the customer
returns, pays the balance due and takes the item away.
For how what portion of the above is the job counted as a 'work in progress'
for end of financial year purposes?
T.

 

[Peter Saxton]

Suppose a customer places an order and pays a deposit. Three weeks later
construction of the item commences and takes say another week. Then the
completed item sits in the workshop for another week before the customer
returns, pays the balance due and takes the item away.
For how what portion of the above is the job counted as a 'work in progress'
for end of financial year purposes?
T.

60%

 

[DoobieDo]

Suppose a customer places an order and pays a deposit. Three weeks later
construction of the item commences and takes say another week. Then the
completed item sits in the workshop for another week before the customer
returns, pays the balance due and takes the item away.
For how what portion of the above is the job counted as a 'work in
progress'
for end of financial year purposes?
T.

it would be have been more than a little helpful if you had said at which
stage of that process the end of financial year occurred, although some
dildo will probably have a guess at some meaningless percentage.

 

[Martin]

Suppose a customer places an order and pays a deposit. Three weeks later
construction of the item commences and takes say another week. Then the
completed item sits in the workshop for another week before the customer
returns, pays the balance due and takes the item away.
For how what portion of the above is the job counted as a 'work in
progress'
for end of financial year purposes?
T.

Suggest you treat it as WIP or FG stock / inventory until point of
invoicing - which is commonly the time of despatch, so in your case is
presumably time customer collects. If customer is paying by cheque, you
might be advised to raise pro-forma invoice at that point, and treat it as a
sale only when the chq has cleared - hence retain item in FG.a few days
longer.

You also need to treat the deposit correctly, but unless it is clearly a
non-returnable deposit which has put you under an obligation, I would keep
it simple and treat the deposit as "receipt in advance" - i.e. a creditor.

 

[tahiri]

Suggest you treat it as WIP or FG stock / inventory until point of
invoicing - which is commonly the time of despatch, so in your case is
presumably time customer collects. If customer is paying by cheque, you
might be advised to raise pro-forma invoice at that point, and treat it as a
sale only when the chq has cleared - hence retain item in FG.a few days
longer.

You also need to treat the deposit correctly, but unless it is clearly a
non-returnable deposit which has put you under an obligation, I would keep
it simple and treat the deposit as "receipt in advance" - i.e. a creditor.

Okay, I obviously phrased the question badly. Do I take Peter's suggestion
of 60% of my five week example to mean the 3 weeks between the deposit and
start of manufacture? Surely not?

Doobie, the reason I did not give the end of year is because there would
actually be several items being made in succession and the end of year date
would be at a different point in each one.

This is a one man self employed small business, with very simple paperwork.
A lot of the customers use cash not cheques. (Martin, what does the F stand
for in FG? assuming G is goods) When the books went to the accountant last
year he said the revenue had been circularising accountants to be more
specific/accurate about work in progress so I am trying to understand what
is required before he asks this time. I think the problem may be arising
because there is no evidence of the date construction of each job actually
starts. Is that likely?

Afterthought - the value of the work in progress is presumably the amount of
the balance paid on completion?

T.

 

[Martin]

Okay, I obviously phrased the question badly. Do I take Peter's suggestion
of 60% of my five week example to mean the 3 weeks between the deposit and
start of manufacture? Surely not?

No. Peter's being silly.

Doobie, the reason I did not give the end of year is because there would
actually be several items being made in succession and the end of year
date
would be at a different point in each one.

Ignore Doobie - he's always silly and was also trying to be funny in
response to Peter's post.

This is a one man self employed small business, with very simple
paperwork.
A lot of the customers use cash not cheques. (Martin, what does the F
stand
for in FG? assuming G is goods)

Finished goods.

When you buy your materials, that's "Raw Materials".

When you start to work on them and therefore incur cost, the Materials plus
what you've spent doing things to them are WIP.

When you've finished, the end result is FG.

It frankly doesn't matter much - certainly not to the taxman - what you call
these stages, so long as the total is correct.

When the books went to the accountant last
year he said the revenue had been circularising accountants to be more
specific/accurate about work in progress so I am trying to understand
what
is required before he asks this time.

You would be wise to ask him now, not wait for him to ask you later.

I think the problem may be arising
because there is no evidence of the date construction of each job actually
starts. Is that likely?

Dates aren't important providing you know (in total) what you've spent
"adding value" to the raw materials as at the end of your accounting year.
Your costs will be materials you've bought and incorporated in the product,
direct labour cost in machining, assembly, testing etc, and a share of
overhead costs (tho that is often ignored for small manufacturing
businesses)

Afterthought - the value of the work in progress is presumably the amount
of
the balance paid on completion?

No - it has nothing to do with what a customer has paid you or will pay you
(unless you expect to sell for less than it's cost you to make) WIP is the
cost to you of the part-finished products which you still own at year-end.

 

[Peter Saxton]

Okay, I obviously phrased the question badly. Do I take Peter's suggestion
of 60% of my five week example to mean the 3 weeks between the deposit and
start of manufacture? Surely not?

It was very late and I was tired! I noted down the weeks and misread
them. You account for the deposit when you receive it. You account for
the WIP from start (at various values depending on cost) until it's
completed. You account for it in finished goods from completion until
sale.

Doobie, the reason I did not give the end of year is because there would
actually be several items being made in succession and the end of year date
would be at a different point in each one.

This is a one man self employed small business, with very simple paperwork.
A lot of the customers use cash not cheques. (Martin, what does the F stand
for in FG? assuming G is goods) When the books went to the accountant last
year he said the revenue had been circularising accountants to be more
specific/accurate about work in progress so I am trying to understand what
is required before he asks this time. I think the problem may be arising
because there is no evidence of the date construction of each job actually
starts. Is that likely?

F = finished

The only dates you need to know are the end of year end the delivery
date. Values are more important - unless the value and time are
constant.

Afterthought - the value of the work in progress is presumably the amount of
the balance paid on completion?

No, WIP means what it says. If the deposit is 1k and the balance is 4k
are you saying that WIP should always be 4k? You are ignoring the
deposit, any profit and the year end date as well as the costs.

 

[tahiri]

Thank you for your help gentlemen. I think I have the picture a lot better
now.

T.

 

[DoobieDo]

Thank you for your help gentlemen. I think I have the picture a lot better
now.

T.

at year-end, walk round and decide that job 1 is approximately 10% finished
: 2 is 40% : 3 is 75% etc.
value them accordingly.

What's difficult about that?