Are you missing out on what Percentage of Completion adjustments can reveal about your month-to-month profitability?
- Does your company take on long-term jobs? (Jobs are ‘long-term’ if income and/or costs stretch across more than 1 month)
- Do you find that your gross profits and job profitability reports ‘swing’ dramatically from month to month?
- Are you guessing at your current (and future) company and job profitability?
- Do you know that you SHOULD make Percentage of Completion adjustments but find it too difficult or confusing?
- Do you have to wait for and then pay your external accountant to make these critical entries?
If so, use the Percentage of Completion Analyzer to accurately compute the numbers and provide the exact journal entries you need to make these critical adjusting entries!
Percentage of Completion Analyzer™
(P-O-C Calculations & Journal Entries)
$997
More Than 130 Satisfied Customers!
This Percentage of Completion ‘Calculation & Entries’ tool helps you identify and extract the information you need for these crucial accounting entries.
It computes results based on your Estimates, Change Orders, and job cost accounting reports. If you are aware of ‘over-runs’ or ‘known under-budget’ savings, you just add them into the Analyzer.
That means you DON’T need to wait on or obtain ‘percentage guesstimates’ from job-site supervisors!
Just make your entries into the Analyzer for jobs in progress. It will then automatically and accurately compute your “over-billed” and “under-billed” amounts, job by job. It then presents results in a Journal Entry format – so you can quickly and easily make the entries into your accounting system…
It saves hours of work, frustration, and worry.
The result:
Your job cost reports instantly show your true monthly and life-to-date gross profit for each of your long-term, ‘open’ jobs. This means you will also be able to see a more accurate picture of overall company profitability.
How to Calculate Percentage of Completion (POC) Accounting Entries On Your Own
Using the percentage of completion method in your accounting is simple to summarize. But applying it to calculate the appropriate journal entries by hand is, unfortunately, time-consuming and complex.
The Percentage of Completion Formula Journal Entries
If you want to make POC calculations and entries on your own, you need to use the steps of the Percentage of Completion Formula:
- Calculate the percentage of incurred costs versus the total costs budgeted for the project.
- Apply that percentage amount to the total amount you will receive for the project (including change orders and adjustments).
- Calculate the difference between the amount invoiced to date and the amount calculated in step 2.
- Determine debits and credits and make the journal entry on the last day of each month to adjust income up or down by the amount calculated in step 3.
- Create another accounting journal entry on the first day of the next month to reverse the accounting entry made the day before.
- Do all the above for each project your company is working on.
Sounds complex, right?
There IS a solution…
That’s why we created the Percentage of Completion Calculator.
Use it to calculate and make the appropriate accounting journal entries in minutes. Compare that to the dozens of hours it will cost you if you’re applying it to multiple jobs across your company!
Picture this – it’s late at night after a tough day. You and your accountant are sitting in a room trying to remember how to do all of the procedures shown above. (For example, gathering the numbers, punching them into your spreadsheet, looking at the results, possibly uttering a few words your grandmother may disapprove of, double-checking to make sure you got it all right, finding your errors, starting over, uttering those words again, then making the journal entries and double-checking to make sure everything got booked appropriately.)
Sound familiar?
Now, add up your personal fully-burdened labor burden rate, plus your accountant’s hourly rate, and multiply the result by the number of hours you spend each month.
Now, multiply that number by 12 to get a full year’s cost of trying to do it by hand! (And don’t even consider the frustration and increased likelihood of a migraine or risk of a heart attack…)
Can you see why I say that at less than $1,000, our Percentage of Completion Analyzer is a steal at this price!?!
Stop the confusion and frustration over your Percentage of Completion adjustments! You can now consistently make these entries on your own without the time and frustration of doing it yourself. (Or incurring the cost of paying for [or waiting on] an outside accountant.)
Your Percentage of Completion Analyzer includes a User’s Guide, an overview of Percentage of Completion concepts, and sample calculations and entries.
Meet the Creator of the “Percentage of Completion Analyzer™“
Diane Gilson – QuickBooks Certified ProAdvisor
In addition to being an award-winning Accountant and QuickBooks Certified ProAdvisor, Diane Gilson has taught, coached, and advised thousands of QuickBooks users in the construction industry.
In this program, Diane combines her 30+ years of accounting experience (including 15 years as a CPA) with her passion for job costing. Helping company owners, accountants, and bookkeepers drive more profits through job costing and better financial management has been the heart and soul of her business for more than 20 years.
Click here to review screenshots from the Sample Percentage of Completion Analyzer™, including:
- Overview of Percentage of Completion Analyzer features
- Estimates, Change Orders, and other revisions to estimates
- Percentage of Completion calculations and forecasts
- Actual journal entry format for you to use to make adjustments
$997
Note 1 – License valid for one company and one computer.
Note 2 – Consultants & Accountants: We love working with consultants and accountants, but please note that this product is NOT licensed for use for multiple entities. To utilize this product for more than one client, please contact us for helpful insights and discounted licensing arrangements. We appreciate your consideration regarding legal intellectual property rights…
Article…
How Percentage of Completion Entries Fix
Revenue Fluctuations for ‘In-Process’ Contracts
The Problem with ‘In-Process Contracts’
Custom builders and project-based firms often invoice per contract stages over extended periods, from several months to over a year. As a result, income is nearly always booked either:
- Before costs are entered into your accounting system and/or
- After costs are incurred or entered
However, job costs are usually incurred and entered into the accounting system on an ongoing but fluctuating basis. As a result, you’ll see a mismatch between what has been invoiced and what has been earned.
Why is this a problem?
One month, you may have lots of income on a job but not much in terms of cost.
The next month, you may have little or no income but lots of costs.
The result? A monthly ‘see-saw’ effect on your gross profit results! (See below for 2 examples):
Looking at the results above, you’ll notice that no single month reflects the true Total job profitability (30% for Job A and 25.5% for Job B). Each month, viewed in isolation, shows wildly varying and unrealistic profit or loss. If you have a need to know how a job – or the company – is doing, this could create quite the emotional roller coaster!
More importantly, with Bills, Checks, Payroll, Invoices, and cash coming and going, it’s virtually impossible to know how much you are truly EARNING on a day-to-day, week-to-week, and month-to-month basis on any specific long-term job. Of course, if you have a good job costing accounting system, you will eventually know your final results on any given job, but that’s far too late to take corrective action.
How is each Job doing?
You have to know, consistently, how each job is performing in relationship to budget if you want to control your profitability. You simply can’t wait until each individual job is done.
With a multitude of projects running at the same time, it can become nearly impossible to nail down your company-wide financial scores for any given time frame!
Think of this like using a level – as you build, you’re constantly checking to make sure each part of what you’re building is level. If you wait to apply the level until after the project is done, you’re going to be ripping out and redoing a lot of work.
Financially, that’s where Percentage of Completion adjustments come into play.
Percentage of Completion adjustments to the rescue!
The ‘Percentage of Completion adjustments’ technique provides you with a stable, reliable way of matching each job’s life-to-date revenue against its life-to-date expenses. The POC adjustments mean that you can see how this month’s (or quarter’s) profit “lines up” against last month’s, last quarter’s or last year’s. And if your job profitability reflects reality, your company-wide numbers will more clearly reflect reality.
How is it done? Your income is adjusted up or down each month so that the income earned corresponds to costs incurred. For example, if you anticipate a 30% gross profit on a job, and life-to-date, you have incurred 60% of the costs on a job, your income is adjusted to reflect 60% of your anticipated income.
The result: you’ll see your anticipated gross profit reflected each month that the job is open. Simply stated, the entries provide a way to “level” your financial results across accounting periods. Please see the example below that illustrates how the income looks for Jobs A and Job B AFTER Percentage of Completion adjustments.
Quite a difference in what you see each month, isn’t there? (Be sure to compare the ‘before and after’ pictures…)
As you’ll see from the results above, Percentage of Completion (POC) entries act much like the bubble in a common level (i.e., You temporarily adjust revenue for individual jobs to proportionally match costs incurred. You adjust, and then reverse, your entries at the end of each month.)
Remember, The Percentage of Completion Accounting Method May Be Required
Because the percentage of completion method offers clear insights into production and earnings, many organizations require POC calculations and adjustments:
- Various national consulting groups (so participants can compare true productivity and profitability with other participants).
- Many bonding companies
- Banks who track company profitability on their borrowers
- The IRS – for businesses above a certain gross revenue level (see your tax advisor or this IRS article for specifics).
(NOTE: Despite tax requirements, the percentage of completion method yields the best management info for long-term jobs. Why? It matches costs incurred with income earned. You can use the POC method for internal reports, even if your tax advisor uses another method.)
Extra Percentage of Completion Benefits – Especially for Owners & Managers
In addition to seeing ‘smoothed out’ gross profits on jobs and more realistic bottom-line management reports, you should also reap the following bonuses:
- As you compile data for Percentage of Completion calculations, you’ll gain insight into key financial metrics. E.g., You’ll see estimated income and costs, change orders, allowances, and over/under-runs.
- You will gain a much deeper understanding of exactly how individual jobs are shaping up financially as they progress. From there, you can swiftly adjust to finish jobs on time and under budget.
- When you evaluate key players using accurate financial criteria, they naturally work to enhance their results!
- Accurate financials make obtaining construction financing easier by better reflecting your true financial situation.
- When you know what your numbers REALLY are, you can save the ‘roller-coaster’ thrills for the amusement park. When you’re running a company, a nice, smooth train ride is preferable…
Percentage of Completion Works!
Yes, it will require a small investment (less than $1,000) to get your Percentage of Completion adjustments ‘up and rolling,’ but the payoffs are significant.
If you:
- Have experienced those fluctuating numbers.
- Need to continually guess what’s still coming in the door for ongoing jobs.
- Experience ongoing discomfort because you don’t know where you stand on a job until AFTER it’s completed.
- Sense that your finances are out of control because you don’t know where your company REALLY stands.
It’s time to move these adjustment techniques and reporting improvements to the top of your list!