Question:
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?
Answer:
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.
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?
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.
