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Dynamics 365 Community / Forums / Microsoft Dynamics AX (Archived) / WIP Ledger accounts in...
Microsoft Dynamics AX (Archived)

WIP Ledger accounts in project module

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Posted on by imran ul haq 4,017

Hi All

Can you explain me why we are using the WIP ledger accounts in Fixed Price Percentage completion project. As at the time of invoicing "WIP-On Account" get credited and at the time of Estimation another "WIP-Sales Value" ledger account debited. As my understanding is "WIP-On Account" tell us how much we invoice and "WIP - Sales Value" tell us how much we have to invoice, for the matching we are using these account.

That will be good if anyone can explain me how to explain this to the finance department as i am not from the finance background.

Please advise, thanks in advance.

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  • Suggested answer
    Ludwig Reinhard Profile Picture
    Ludwig Reinhard Microsoft Employee on at

    Hi imran,

    WIP accounts are usually used to "store" all costs and revenues in balance sheet accounts until the costs and revenues are realized. Here is a simplified example:

    wipproj.png

    As the project goes along, all costs for horus, expenses and items are "stored" in WIP accounts in the company's balance sheet. If you sent a customer an invoice, no revenue is generated. Rather than that, a posting on a WIP account (PRO-WIP-INV-ONACC in my example) occurs to ensure that all transactions do not generate a profit / loss.

    The profit/loss generation occurs with the estimate process. That is, when running the project estimate, the WIP cost postings are reversed and the costs are recognized in a company's P&L Statement. At the same time revenues are recongnized. The Revenue recognition occurs through a WIP-Salesvalue account that is reversed once the project is eliminated.

    Please have a look at the sample transactions illustrated above. Hope they will clarify the use of ledger accounts in Fixed Price Project with POC.

    All the best,

    Ludwig

  • Suggested answer
    5400 Profile Picture
    5400 7,162 on at

    please find the link in addition

    technet.microsoft.com/.../aa551530.aspx

  • imran ul haq Profile Picture
    imran ul haq 4,017 on at

    Thanks Ludwig for your reply.

    I got it what your want to explain that WIP accounts for the storing the values in the balance sheet, and in the project i am putting my cost to the P&L accounts.

    And in my trail balance my four ledger accounts are affecting:

    1. All the cost ledger accounts(P&L), when posting the transaction in the project

    2.WIP - Sales Value (Balance), when i make the estimate, debit figure

    3.Accrued Revenue(P&L) - Sales Value, when i make the estimation, credit figure

    4.WIP - Invoiced - On Account (Balance), When invoicing the customer, credit figure

    So here i have two WIP Accounts for the balance sheet, i want to know and how i can explain this to client for what we created these accounts. In My understanding these accounts are for the matching how much we invoiced and how much the revenue is recognized.

    As i am not from the financial background, i don't know the accounting treatment also. I just tried to configure by studying the manual and demo database of the AX. may be i forget or created the wrong posting profile.

    please guide me.

  • Suggested answer
    Ludwig Reinhard Profile Picture
    Ludwig Reinhard Microsoft Employee on at

    Hi Imran,

    I would explain the WIP accounts required by referring to the matching principle. That is, in order to measure the project progress and the project profitability you have to make sure that costs and revenues match. Without those WIP accounts you often run into situations where costs arise in one period and revenues in another one. If you need more details (arguments) on project pogress measurement and Controlling, please have look at the following website: en.wikipedia.org/.../Earned_value_management.

    AX cannot do everything that is described there in standard but it can do much of it and I believe it will help you understand better.

    All the best,

    Ludwig

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