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The WIP Adjustment/Journal Entry


It's recommended that you create three accounts to record your over/underbillings:


Underbillings (Asset/Balance Sheet)- Current Asset


Overbillings (Liability/Balance Sheet)- Current Liability


Revenue: Over/Under (Revenue/Income Statement)- Separate revenue account recommended, not required. I personally think it's easier to reconcile contract activity when you have over/underbillings separate from your construction revenues account.


Remember that the revenue: over/under account is where the difference between under and overbillings goes to balance the journal entry. So if you have to debit underbillings by $10,000 and credit overbillings by $3,000, you would also credit the revenue: over/underbillings by $7,000 so your entry balances ($10,000 in debits and $10,000 in credits).


Different scenarios for illustration:


Increasing Underbillings:

When you increase underbillings, you're increasing revenues

Debit: Underbillings

Credit: Revenue


Decreasing Underbillings:

When you decrease underbillings, you're decreasing revenues

Debit: Revenue

Credit: Underbillings


Increasing Overbillings:

When you increase overbillings, you're decreasing revenues

Debit: Revenue

Credit: Overbillings


Decreasing Overbillings:

When you decrease overbillings, you're increasing revenues

Debit: Overbillings

Credit: Revenue



Hope that helped! Thanks!



Ara




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