Project Accounting Asset Tracking

Due to Business Ready Licensing (where clients receive a "suite" of modules when purchasing Microsoft Dynamics GP), I have found more and more clients using project accounting in non-traditional ways simply because they already own the software. One of the most common non-traditional approaches is to use the module to track capital expenditures. Project accounting works great for the capturing of the myriad of costs associated with a capital project like labor, materials, consulting, and even indirect expenses like overhead and equipment usage.

One of the questions that always comes up in discovery is how to handle the "recognition" of the asset, when a capital project has reached a specific stage of completion and the construction in progress can be capitalized. I have found that by using the WIP (Work in progress) functionality of project accounting with a time and materials project, we can easily emulate the transfer of expense from a CIP (Construction in progress) account to an asset account.

Let's walk through an example of typical WIP using a cost of $100 that is billed for $150:

$100 purchase
$100 Debit Work In Progress
$100 Credit Contra Account for Cost (Accounts Payable)

$150 billing
$100 Debit Cost of Goods Sold/Expense
$100 Credit Work in Progress
$150 Debit Accounts Receivable
$150 Credit Project Revenue

Okay, so that is all well and good, but with a capital project there would be no billing, right? Well, in our process we will do a "dummy" bill as outlined below.

$100 purchase
$100 Debit Work in Progress (Construction in Progress)
$100 Credit Contra Account for Cost (Accounts Payable)

For this to work, its important to note that the billing type is set to STD (standard) and the profit type is set to Billing Rate $0.00. These settings are very important. You cannot make the items NB (not billable) or NC (no charge), or set the profit type to NONE-- the process will not work with these settings as no WIP distribution will be generated.

Then, when we do a billing (using cycle biller or manually, choosing what needs to be recognized-- either all the costs, or just a portion), the items will show up to be billed at $0.00 resulting in a $0.00 bill and no effect on receivables management. However, the costs will be moved out of WIP in to the appropriate asset account. The billing you print serves as a record of the expenses that were capitalized.

$0.00 billing
$100 Debit Cost of Goods Sold/Expense (Asset account)
$100 Credit Work in Progress (Construction in Process account)

As an additional tip, if you are using the fixed assets module. The debit above (to Cost of Goods Sold/Expense) would actually go to the FA Clearing account, and the report from the billing would be given to the user who sets up fixed assets. They can set up the fixed asset for the total amount that was moved from CIP, the action of setting the asset up in fixed assets would then move the balance from FA clearing (credit) in to the FA cost account (debit).

If anyone has any other unique processes they have accommodated in project accounting, I would love to hear about them and will post them on this blog.