Presented by Ono & Chen CPAs, LLC May 29, 2014.  Full service CPA firm specializing in assisting clients that work with the WIP Schedule.  Over 95%

Slides:



Advertisements
Similar presentations
QuickBooks / Financial Review 1)Financial Reports Usability 2)Percentage of Completion Adjustment.
Advertisements

ACCT 100 Chapter 3 Adjusting the Accounts Accrual Accounting and the Financial Statements 2 Objectives of the Chapter I.Introduce the accrual accounting.
Review of the Accounting Process INTERMEDIATE ACCOUNTING I CHAPTER 2 This presentation is under development.
Principles of Financial Accounting
ADJUSTING THE ACCOUNTS
Chapter 12 Skyline College.
Accounting for Receivables
Generally Accepted Accounting Principles
Financial Statement Analysis MGT-537 Dr. Hafiz Muhammad Ishaq 32
Review of the Accounting Process
Review of the Accounting Process
How to read a FINANCIAL REPORT
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Accounting Records and Systems © The McGraw-Hill Companies, Inc., Part One: Financial.
Learning Objectives After studying this chapter, you should be able to: Recognize revenue items at the proper time on the income statement. Account for.
© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Adjusting Accounts and Preparing Financial Statements Chapter 3 3.
STUDY OBJECTIVES After studying this chapter, you should understand: Time period assumptionAdjusting entries for prepayments Accrual basis of accountingAdjusting.
Adjusting Entries: Matching Accounting & Timing Certain end-of-period adjustments must be made when you close your books. Certain end-of-period adjustments.
Chapter 3.
 Accrual accounting  Revenue  Earned when company delivers a product or performs a service  Expenses  Incurred when company uses resources or services.
Income Measurement (Part 2)
Accounting Principles, 6e Weygandt, Kieso, & Kimmel
The Accounting Cycle Continued – Preparing Worksheets and Financial Statements Chapter 4 2.
ACG2021 Financial Accounting Chapter 3 Using Accrual Accounting to Measure Income.
The Work In Process Schedule
1 Chapter 4: Preparing Financial Statements. 2 Preparing Financial Statements Chapter 4 is a continuation of Chapter 3. Once the general journal entries.
ACCOUNTING PRINCIPLES SIXTH CANADIAN EDITION Prepared by: Debbie Musil Kwantlen Polytechnic University Chapter 3 Adjusting the Accounts.
© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Slide Reporting and Preparing Financial Statements.
Chapter 3 Preparing Financial Statements Annually 12 Monthly Quarterly Semiannually The Accounting Period Jan FebMar Apr MayJunJulAugSepOctNovDec.
Chapter 6 Accrual Accounting Concepts and the Accounting Cycle.
© 2009 Cengage Learning/South-Western Financial Statement and Cash Flow Analysis Chapter 2.
Unit 1.3 Adjusting the Accounts The time period (or periodicity) assumption assumes that the economic life of a business can be divided into artificial.
John Wiley & Sons, Inc. © 2005 Chapter 3 Adjusting the Accounts Accounting Principles, 7 th Edition Weygandt Kieso Kimmel.
Adjusting Accounts for Financial Statements PowerPoint Slides to accompany Fundamental Accounting Principles, 14ce Prepared by Joe Pidutti, Durham College.
Financial Statement Basics Roy Williams – FHA Deputy Chief Underwriter.
Unit # 4 – The Income Statement. Where we are: 1.Journalize (Using the General Journal) – not yet 2.Post (To Ledger Accounts – which are also known as.
Adjusting Entries. TWO METHODS  Some companies will employ different methods of accounting based on the nature of their operations.  These methods change.
BELL RINGER Name the accounting principle that each of the following describes: If $51,000 cash is paid to buy land, the land is reported on the buyer’s.
12–1 1-1 Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Janet Stan, CPP Corporate Controller Talco Enterprises, Inc x 3116 PAYROLL ACCOUNTING Chapter 6.
John Wiley & Sons, Inc. © 2005 Chapter 3 Adjusting the Accounts Accounting Principles, 7 th Edition Weygandt Kieso Kimmel Prepared by Naomi Karolinski.
Acquiring and Organizing Management Information Chapter 3.
1 McGraw-Hill Ryerson College Accounting First Canadian Edition Price Haddock Brock Hahn Reed.
Deferral Adjustments Other Terms Review Potpourri $100100$100100$ $200200$200200$ $300300$300300$ $400400$400400$ $ Accounting.
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter 1717 Understanding Financial Information.
1 ACC102: FINANCIAL ACCOUNTING Week 3: Lecture 4.
CHAPTER TEN ACCOUNTING FOR A PROFESSIONAL SERVICE BUSINESS: THE COMBINATION JOURNAL.
Chapter 3 The Adjusting Process
Financial Analysis of a Business
Chapter 3 Accrual Accounting Concepts. Why is Accrual Accounting Needed? Cash received or paid Revenue earned Expense incurred.
Adjusting Accounts for Financial Statements C H A P T E R 4 © 2007 McGraw-Hill Ryerson Ltd. Electronic Presentations in Microsoft® PowerPoint®
Welcome Back 1Atef Abuelaish. Welcome Back Time for Any Question 2Atef Abuelaish.
GLENCOE / McGraw-Hill. Accruals, Deferrals, and the Worksheet.
Generally Accepted Accounting Principles (GAAP)
Adjusting entries Prepared at the end of the period before income statement and balance sheet are prepared.
Adjusting the Accounts
College Accounting A Contemporary Approach
ADJUSTING THE ACCOUNTS
Chapter 10: accruals and prepayment
Financial Accounting, 5e California State University,
© 2007 McGraw-Hill Ryerson Ltd.
Accruals, Deferrals, and the Worksheet
Operating Decisions and the Income Statement
ACCRUALS AND DEFERRALS
ADJUSTING THE ACCOUNTS
SQ-1 Week 5--Finance Judy Ballard.
The Adjusting Process LO 1 – Understanding the Nature of the Adjusting Process.
LO 1 – Understanding the Nature of the Adjusting Process
Presentation transcript:

Presented by Ono & Chen CPAs, LLC May 29, 2014

 Full service CPA firm specializing in assisting clients that work with the WIP Schedule.  Over 95% of our clients are in construction and/or are government contractors.  We believe in educating our clients and working with them to help them get to the next level.

I. General Accounting Basics and How to Save Money on your CPA II. Accrual vs. Cash Basis III. Percentage of Completion Method of Accounting IV. -- Break Time -- V. What is the WIP Schedule? VI. Detailed WIP example

Let’s Begin!

Make sure to have the following in place:  Have a dedicated Accountant/Bookkeeper.  Use a CPA or tax preparer that you not only trust, but someone who understands your business and your industry.  Understand the requirements of your financial institution (bank) and insurance company.

What do banks/insurance companies generally look at: 1. Overall Profitability 2. Balance Sheet including Working Capital 3. Cash Flow 4. Distributions to Owners 5. Timely Financial Reporting 6. Underbillings/Overbillings (WIP) 7. Poor Fade (WIP)

Even if you trust your CPA completely, it is important to have a basic understanding of the financial statements:  Balance Sheet  Income Statement  Statement of Cash Flows  Statement of Retained Earnings  Work-in-Progress Schedule

Taking the following steps should enable you to start saving money on your CPA bill!

1. Make sure to enter your adjusting journal entries (AJEs) promptly! 2. Don’t make any changes to prior years’ transactions! 3. Make sure to reconcile all bank and credit card accounts monthly!

4. Keep account coding simple! 5. Don’t commingle accounts with your personal accounts! 6. Job costing 101 – All job costs should be coded to a job!

 What is the cash basis of accounting?  What is the accrual basis of accounting?  Why is it important?

Common accounts on an accrual basis financial statement that you won’t see on a cash basis financial statement  Accounts Receivable  Prepaid Expenses  Accounts Payable  Accrued Expenses  Bad Debt Expense

 What is it? 1.Investopedia definition: An accounting method in which the revenues and expenses of long-term contracts are recognized yearly as a percentage of the work completed during that year. 2.It is a revenue recognition method recognized by Generally Accepted Accounting Principles (GAAP).

 What is a long-term contract? IRC Section 460(f)(1): In general, the term "long- term contract" means any contract for the manufacture, building, installation, or construction of property if such contract is not completed within the taxable year in which such contract is entered into.

 Why is it important? 1.It is the most accurate way to measure revenues on uncompleted contracts. 2.More importantly, it is probably required by the bank, surety company, and even your friends at the SBA!

The most important schedule in financial statements using the percentage-of- completion method is the work-in- progress schedule!

-- Break Time --

 It is a supplementary schedule within the financial statements of a construction contractor (using the percentage-of- completion method) that shows a financial snapshot of a contractor’s uncompleted contracts at a specified time period.  The WIP schedule may be required by your surety/banks on a monthly, quarterly, semi-annual, or annual basis.

COST DRIVES REVENUES!!

 Current contract price (including change orders)  Total estimated contract cost  Cost incurred to date (from inception)  Billings to date

 Estimated gross profit on completed contract  Gross profit percentage  Percentage complete  Revenues earned to date  Gross profit to date

Formula: Current contract price minus total estimated contract cost.  Example: If you sign a contract for $600,000 and you estimate that your total costs will be $400,000, what is your estimated gross profit?

Formula: Current contract price minus total estimated contract cost.  $600,000 $400,000  Answer: $200,000

Formula: Estimated gross profit divided by current contract price  Example: Using previous example (contract price of $600,000, total estimated costs of $400,000, estimated gross profit of $200,000), what is your gross profit percentage?

Formula: Estimated gross profit divided by current contract price  $200,000 / $600,000  Answer: 33 1/3%

Formula: Cost incurred to date divided by total estimated contract cost  Example: Using previous example (contract price of $600,000, total estimated costs of $400,000, estimated gross profit of $200,000), if your cost incurred to date is $40,000 on this job, what is your percent complete on this job?

Formula: Cost incurred to date divided by total estimated contract cost  $40,000 / $400,000  Answer: 10%

Formula: Percent complete times current contract price  Example: Using previous example (contract price of $600,000, cost incurred to date of $40,000, percent complete of 10%), how much of your revenues have you earned to date?

Formula: Percent complete times current contract price  $600,000 x 10%  Answer: $60,000

Formula: Revenues earned to date minus cost incurred to date  Example: Using previous example (percent complete of 10%, revenues earned to date of $60,000, cost incurred to date of $40,000), what is your gross profit to date?

Formula: Revenues earned to date minus cost incurred to date  $60,000 $40,000  Answer: $20,000

 Ono & Chen Builders secures a job with Hawaii DOT on 10/1/13 with the following values: ◦ Contract signed for $500,000 ◦ Project manager expects job will cost $250,000 ◦ As of 12/31/13, $50,000 of materials have been purchased for the job

 Estimated Gross Profit  Gross Profit Percentage  Percent Complete as of 12/31/13  Revenues Earned to Date as of 12/31/13  Gross Profit to Date as of 12/31/13

 Estimated Gross Profit = $250,000  Gross Profit Percentage = 50%  Percent Complete as of 12/31/13 = 20%  Revenues Earned to Date as of 12/31/13 = $100,000  Gross Profit to Date as of 12/31/13 = $50,000

 Job costing is extremely important as revenues earned to date are driven by costs. Therefore, it is important that you properly code all your job costs!

 Sometimes referred to as overbillings and underbillings, it is the difference between revenues earned to date and amount billed to date to the customer.  These accounts are balance sheet accounts and are an offset against revenues. ◦ Cost in Excess of Billings is an asset ◦ Billings in Excess of Cost is a liability

 Ono & Chen Builders has earned $100,000 of revenues as of 12/31/13 on a sole source contract with Hawaii DOT and has billed Hawaii DOT $50,000 as of 12/31/13.  Ono & Chen Builders has underbilled Hawaii DOT and must record the following journal entry on 12/31/13: ◦ DEBIT: Cost in Excess of Billings $50,000 ◦ CREDIT: Revenues $50,000

 Ono & Chen Builders has earned $100,000 of revenues as of 12/31/13 on a sole source contract with Hawaii DOT but has billed Hawaii DOT $130,000 as of 12/31/13.  Ono & Chen has overbilled Hawaii DOT and must record the following journal entry: ◦ DEBIT: Revenues $30,000 ◦ CREDIT: Billings in Excess of Cost $30,000

Note: The journal entries for ‘Cost in Excess of Billings’ and ‘Billings in Excess of Costs’ are very important. These entries directly offset revenues.

WIP Example

1. Calculation errors and missing cells 2. Estimated total cost not adjusted with change orders and other adjustments 3. Incorrect ‘cost in excess’ and ‘billings in excess’ journal entries

Ono & Chen CPAs