A question that always comes up is "How do I know if I'm calculating work in progress (WIP) correctly?" Unfortunately, we'll never really know, but not all hope is lost! The best we can do is analyze WIP for reasonableness.
I typically see the following scenarios related to underbillings:
The didn't get around to it scenario. Or pre-construction costs, move out of costs to the balance sheet scenario.
The nothing to see here folks scenario.
The really? Are you sure scenario.
Going through the punch list. Finished billing in the subsequent period scenario.
I will cover each scenario in a separate lesson, so stay tuned!
Note: These are the standard scenarios I come across. Your scenario may be different. I advise you to consult with your CPA or accounting professional for further guidance.
Thanks!
Ara