Percentage of Completion (POC) method

In Microsoft Dynamics 365 Business Central, the Job Work-In-Progress (WIP) methods are used to evaluate and manage the financial state of a job as it progresses. The WIP method you select determines how the costs and revenue of a job are recognized in your accounting. The Percentage of Completion (POC) method is one of the options available and is based on the degree to which a job is completed.

 

Here’s an example to illustrate how the Percentage of Completion (POC) method works:

 

 Example: Construction Project

 

Suppose you run a construction company and are working on a new building project. The total contract value for the job is $500,000, and the estimated total costs are $400,000. At a certain point in the project, you want to calculate the WIP to understand the project's financial health.

 

Step 1: Calculate the Percentage of Completion

- By evaluating the project, you determine that approximately 50% of the work has been completed.

- The costs incurred to date are $200,000.

 

Step 2: Recognize Revenue and Costs

- Using the POC method, you can now recognize revenue and costs in proportion to the work completed.

- The recognized revenue would be 50% of the total contract value: 0.5  $500,000 = $250,000.

- The recognized costs would be the actual costs incurred: $200,000.

 

Step 3: Calculate WIP Values

- WIP Cost at this point is the recognized cost, which is $200,000.

- WIP Sales is the recognized revenue, which is $250,000.

 

Step 4: Post to Accounts

- On your balance sheet, you would report a WIP of $250,000 as an asset (work completed but not yet invoiced) and $200,000 as a liability (costs incurred but not yet applied to revenue).

- This method helps in matching revenue with the expenses incurred to earn that revenue, providing an accurate financial picture.

 

Step 5: Regular Updates

- As the project progresses, you will continue to update these figures based on the actual completion percentage and costs incurred.

 

Result

- By applying the POC WIP method, you can accurately reflect the income statement and balance sheet's ongoing progress in a long-term project, ensuring that your financial reporting aligns with the actual work done and costs incurred.

 

This is a simplification for illustrative purposes, as in practice, calculating POC can be quite complex and often requires adjustments for things like changes in project scope, cost overruns, or underbillings and overbillings. However, this gives a foundational understanding of how the WIP method is applied in a job context.

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