For illustrative purposes only, we will look at the logical flow of the Data Pro Job Cost package as a general contractor might use it.

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1 ACCOUNTING FLOW OF JOB COST / TIME BILLING The Data Pro Job Costing Series has a number of component parts that create both the reporting capability and the accounting flow through the modules. These component parts individually are very easy to understand. Putting the components together to create a simple to use, yet powerful solution is the objective of this handout. This piece will discuss the concept of Job Costing, the function and interaction of the different modules, and how the reporting and accounting flow are determined by how the Job Cost Main Module is configured. Lets relate job costing to standard accounting. A job is a profit center or department, and the objective is to create profit / loss by department, to track revenue, cost and expenses by department. The department may be a "Job, Project, House, Work Order, Case, Matter, Account, Crop, etc.".the name of the activity is defined by the user and is not pertinent to the concept, logic, or flow of job cost. In most job cost applications there is also a need to automatically create a billing, or recurring billings. Data Pro supports five (5) different billing calculation types, in addition to creating a manual billing. For illustrative purposes only, we will look at the logical flow of the Data Pro Job Cost package as a general contractor might use it. JOB COST / TIME BILLING LOGICAL FLOW Source Module AR JC JC AP - PR - IM or JC Direct JC AR or JC AR or JC AR or JC AR 1. Add a Customer 2. Add a project 3. Create Project Budget 4. Get cost onto the project Option "Record Cost" 5. Print Budget Comparison / Desired Reports 6. Calculate Billing 7. Print Suggested Billing Worksheet 8. Enter / Adjust Actual Billing 9. Perform Project Billing (Print Invoice) or 1

2 JC SOM JC 9. Update Project Billing Return to 4 until Project Complete 10. Create Sales Order 11. Complete a Project As you can see, the same information can come from different modules, depending on which modules a customer has purchased. It could well be that step 1, "Add a Customer", could not be performed because the user does not have the Accounts Receivable module. Other functions, such as getting cost onto a job, can be done from different places depending on which modules are being utilized. We also know that Data Pro is a modularized system, and that the Job Cost Main Module is designed to run completely stand alone if the customer only desires job reporting and not an accounting system. It could be that all billing functions are bypassed because the user is using the package to track cost of land development with all cost being capitalized and nothing being billed or expensed. Or the job could well be a manufacturing process, where the end result is transferred back to inventory with the entire cost of the job assigned to it, and then sold as an inventory item. As we can see, the Job Cost Series is designed with extreme flexibility. Our job is to understand the component parts and tailor the system to the specific needs of the end user. The Job Cost series is an excellent fit for a General Contractor, Sub-Contractor, Advertising Agency, Temporary Help Service, Citrus Farm, Events Planners and on, and on, and on Let's take a look at how. COST CODES Cost Codes control the flow of dollars through the Job, the flow of dollars to the General Ledger, the format and total / sub-total capability of job cost reports, and the format of your accounts receivable invoice. Please reread the sentence above until you thoroughly understand it. Your cost code layout determines the function of the job cost system. It is imperative that you know the desired reporting, accounting functions and billing calculation types that will be used by a firm before the cost code layout can be determined. There are 4 different types of cost codes available for use in Data Pro system. The Billing Type used by the firm determines to a great extent the type of cost code that must be used. Therefore we must understand the 5 billing types before we can fully grasp the need and function of the different cost code types. At this point you may want to go to the section on "Billing Types" and read that section and then come back to this point. You must understand Billing Types to fully understand all Cost Code considerations and vice versa. There are 4 different types of cost codes: 1. Cost Only 2. Billing Only 3. Cost and Billing 4. Reimbursables 2

3 Think of your Cost Codes as the Chart of Accounts for your General Ledger. The Chart of Accounts, like your Cost Codes totally control the flow of dollars and the total / sub-total capability of your financial statements. Certain Cost Codes are used solely to define headings and total levels on your job cost reports; similar to the "Current Assets" and "Total Current Assets" header and total levels on your Balance Sheet. A Cost Code can be up to 10 alpha/numeric positions long, with up to 5 logical segment breaks. The logical segment breaks control the total / sub-total capability of the job cost reports. We will use a General Contractor using the Percent Complete billing method to start off our examples of Cost Code Layouts and function. That contractor very probably wants to track his cost on a very detailed basis, the exact same basis as he created his estimate, yet desires to bill his customer on a summarized level. This contractor may well use a 3 tiered cost code layout with the detail description sub-total switch turned on in the Master Configuration to achieve the desired reporting and dollar flow on his jobs. For our example, we will define the tiers or segments in the Cost Codes, and their lengths as: SEGMENT NAME SEGMENT LENGTH 1) Change Order 2 Positions 2) Phase 2 Positions 3) Cost Code 6 Positions And now a portion of his Cost Code List (Max 30,000 Codes in Infinity Series) COST CODE DESCRIPTION TYPE ANOTHER NAME 0 Original Contract Billing Only 0 C Concrete Billing Only 0 C L* Concrete Labor Cost Only 0 C C M Concrete Materials Cost Only 0 C C R Concrete Rentals Cost Only 0 C C S* Concrete Sub-Contract Cost Only 0 C F Framing Billing Only 0 F L* Framing Labor Cost Only 0 F F M Framing Material Cost Only 0 F Change Order 1 Billing Only 1 C Concrete Billing Only **See Page 8 of this documentation on Overhead Calculation prior to setting up cost codes. 3

4 This contractor will track his cost in Cost Only codes, so that he can have a very detailed breakout of his cost. By definition, Cost Only Codes only track cost, and when it comes time to bill that cost it looks for the Billing Code directly above the Cost Code in the Cost Codes that are on that job. In the example above, there are 4 Cost Only codes for cost incurred on the Original Contract for Concrete work. Those 4 Cost Only Codes will bill themselves under the Billing Only Code directly above them. If a line item billing was desired, then the firm would use a Cost and Billing type cost code. This would allow for each cost code to bill itself directly. If the "Detail Description" switch is turned on, answered "Yes" in the Master Configuration for that company, then the description of the transaction will act internally like a suffix to the Cost Code and cause the system to pull a sub-total each time the description changes. That sub-total will have the same accounting, and billing characteristics as the primary cost code. It is budgeted for just like an actual Cost Code. So "Cost Only" codes only track cost and bill their dollars in whatever billing code is directly above the cost only code."billing Only" codes only bill cost that was collected in cost only codes."cost and Billing" codes bill themselves individually. Reimbursable codes are for expenses like permits and filing fees that need to be reimbursed. JOB COST REPORT FORMATS: Certain Cost Codes are used exclusively for header and total /sub-total descriptions on your Job Cost Reports. For each tier, or total level, that you create in your Cost Code structure, you MUST set up a Cost Code that gives a description to the header and total for that block of Cost Codes. In the Cost Code example shown above, the 1 st code shown, 0 = Original Contract, is solely for description purposes on reports. The 1 st tier in that structure designates the "Original Contract". That Billing Only Code will act as a header over the section of cost codes that starts with a zero and title them "Original Contract". When the first character of a Cost Code changes to a 1, the system will automatically pull a sub-total and call that sub-total "Total Original Contract". Then, in the example above, there would then be a new header, "Change Order 1", with a "Total Change Order 1" shown at the end of the section of the list, after the 1 st Cost Code 0 = Original Contract, there is a Cost Code 0 C = Concrete. This Cost Code defines the O C section for both the header "Concrete" and total level "Total Concrete", and also is used for billing out the concrete section of the job. If we had not defined one of the sections the reports would print and show "Total >>INVALID CODE<<. When you print job cost reports you are given the ability to print on a summary or detailed level based on the logical segments defined in your Cost Code layout. In the example shown, you would be able to print reports based on the 1) Change Order2) Phase, or 3) Cost Code level. The Cost Code level is the most detailed level. You will only have this capability if you have broken your Cost Codes into more that 1 logical segment. Only if you have properly defined each segment will the reports have proper header and total / sub-total descriptions. Header Original Contract Tier 1, Header Header Concrete Tier 2, Header Detail Concrete Labor Tier 3, Detail Detail Concrete Materials 4

5 Detail Concrete Rentals Detail Concrete Sub Total Total Concrete Total Tier 2 Header Framing Tier 2, Header Detail Framing Labor Detail Framing Materials Total Total Framing Total Tier 2 Total Total Original Contract Total Tier 1 Header Change Order 1 JOB COST DOLLAR FLOW: ALL information as it pertains to dollars on a Project is coming from the dollars flowing through the Cost Codes on the Project. It is impossible to get dollars onto a Project or Job Cost report without putting those dollars into a Cost Code. The General Ledger Accounts to use for those dollars is defined in the Cost Code. There are different buckets for dollars and quantities inside a Cost Code. These buckets are: 1. PTD = Project to Date 2. YTD = Fiscal Year to Date 3. MTD = Month to date 4. Current = The Current Billing Period 5. Budget = Amount Budgeted Shown below is a portion of the information that is held in a Cost Code: ** Code Code ** : O C M 1) Description : Concrete - Materials 2) Type ( 1-4) : 1 - Cost Only 3) Classification : Material 4) AR Sales Code : ) GL SalesAcct : 6) GL WIP Acct : ) GL Cost Acct : ) GL Charges Acct :

6 When actual cost comes into a Cost Code, it goes into the General Ledger Account shown next to Item #6.Although the title suggest a "Work in Process" account, this account can be any valid account in the firms General Ledger. It may well be a Cost, Expense, or Fixed Asset Account, it just doesn't matter. This bucket is where you want the original debit to be posted when you incur cost on a Project in that Cost Code. The dollars stay in that account until you either 1) Calculate and then Update Billing in Job Cost or Perform Billing in AR or 2) Complete the Project. At that time the dollars move from the GL account next to data item #6 and move to the GL account next to data item #7 (GL Cost Acct). This may well be the same GL account, depending on the needs of the user. Item #8, the "GL Charges Account" may very probably never be used by the system. Only if the user is inputting cost to a Project directly from Enter Transactions from the Job Cost Main Module option "Record Cost" would this account be used. This would be the General Ledger account to post the offsetting credit side of the transaction, something like Accounts Payable or Accrued Payroll account. If this cost were coming from the Data Pro Account Payable or Payroll modules, then there would be no need to define the offsetting credit side of the transaction in the Cost Code. If you are billing from the Accounts Receivable module, then the asset account to credit and the cost account to debit are given to AR by the AR Sales Code tied to the cost code. Be sure that the AR Sales Code in a cost code relieves the correct WIP Account. Data Items 4 and 5 deal with billing information in a Cost Code. If you are billing out a project with the Data Pro Accounts Receivable module, then the GL Account to credit for the billing amount is found in the AR Sales Code in Accounts Receivable. This sales code also tells the system if the billing amount should have sales tax automatically calculated and posted. If Accounts Receivable is not being used to automatically invoice the customer, then when you tell the system what you billed on a project (Calculate, then adjust, the GL account shown in data item #5.So as in data item #8, either data item #4 or #5 will be used for the revenue GL account based on what complement of modules the customer is running. So if you have Accounts Receivable, the GL accounts used at the time of billing are defined by the AR Sales Code. Be sure that the GL Accounts defined by the AR Sales Code match the GL Accounts found in the Cost Code. The following accounting is created when you incur cost: From Accounts Payable WIP Accounts Payable DEBIT CREDIT From Payroll WIP Cash From Job Cost Main WIP 6

7 GL Charges Account Then when you bill that cost out: Accounts Receivable Revenue Cost of Sales WIP There can be as many different Revenue, Cost, and WIP accounts as you have cost codes on the project. BILLING TYPES There are 5 different billing calculation types that can be automatically created and posted to a job. You can adjust these calculated billings in any way, (over or under bill), or manually enter your desired billing amounts very easily. The billing type for a given job is defined when you "Start the Project". The 5 Billing types are: 1. Direct Billing 2. Cost Plus 3. Percent Complete 4. Completed Contract 5. Bank Draw 6. Manual Although you will not see "Manual" as a valid billing type when you Start a Project, you can create a manual billing for any project at any time. This is very often done when a job has an advance deposit. The cost code may well be titled "Advance Deposits" with the credit going to a liability account with the same description. This money can be transferred to the appropriate revenue cost codes once earned. Don't lose site of the fact that Data Pro's primary rule is that debits must = credits and you can post to whatever accounts are in you general ledger. DIRECT BILLING: Direct Billing is more often used in a Time Billing environment than in construction. You are simply billing hours or quantities incurred at a pre-defined billing rate. A temporary Help Service may bill the customer $10 per hour for a manual laborer, or $14 per hour for a computer operator. Payroll would put the cost and quantity of hours onto the job, while Accounts Receivable would look at the cost on the job and suggest the appropriate billing to the end customer that purchased the labor. The billing would be based on the quantity in each cost code times the billing rate for the cost code. The billing rate would come from the table tied to the cost code. Direct Billing would also be used by attorneys that are billing for hours of consultation, research or litigation. A "Cost and Billing Code is usually used with Direct Billing. 7

8 COST PLUS: Bills the actual cost incurred on a job at a fixed percentage markup. Usually a line item billing is desired for this billing type. A "Cost and Billing" code is required to produce a line item billing. PERCENT COMPLETE: This is the most commonly used billing type in construction. The billings are usually based on the percentage of completion of the job, by phase of the job. In order to calculate percent complete, the systems must know the scope or size of the job; i.e. a budget is REQUIRED for both cost and billing amounts in order to use this billing type and have automated suggested billings. Revenue is posted to the income statement when the billing is posted with this billing type. Think of an auto parts store; when they purchase a part it is put into inventory; when the part is sold the value is moved to cost of sales, and the sale amount is posted to a revenue account. Both the sale and cost move to the income statement at the time of the billing. Just like in an auto parts store, a contractor using percent complete usually puts purchases, both labor and materials, into a Current Asset Inventory Account called "Work in Process". When this portion of the job is billed, the Work in Process amounts move to the appropriate cost and expense accounts, while the revenue post to the appropriate sale accounts. This allows the books to match up the revenue and cost in a single transaction, as was done in the auto parts store. For all Data Pro Software is concerned, it is just as valid to expense the cost as they are incurred, or capitalize them in a fixed asset account if needed. The calculated billing amounts are a function of your cost budget and your billing budget. Assume a cost budget of $100,000 for a phase of work (Electrical), and cost incurred of $20,000.If you incur 20% of your cost the system would suggest that you bill 20% of your billing budget for that phase of work. With no cost budget the system would have no way of calculating a percentage of completion, and with no billing budget for the phase it would have no way of suggesting how much to bill; remember, this is not cost plus. With front loading and cash flow considerations, it is fairly common for a contractor to bill a disproportionate amount of his total "Contracted Billing Amount" on the early phases of a job, and very possibly bill the last phases of a job at less than actual cost because that cash was pulled in early in the progressive job billings. This is controlled by the Billing Budget assigned to the different phases of cost. The user always has the ability to override the calculated percent complete with the actual percent complete if different. Most firms have the project foreman evaluate the "Suggested Billing Worksheet" prior to the actual customer billing. The billing can then be recalculated by the system based on "Actual" percent complete or the operator can input the desired billing amount. Total billings will be adjusted to the "Total Contract Amount" automatically by the system upon selection of the option to "Complete a Project". If necessary the operator does have the ability to change the "Contract Amount" at the time the job is completed. COMPLETED CONTRACT: Completed Contract billing calculations are exactly the same as Percent Complete. They are solely a function of the Cost and Billing Budget for the job. The 2 billing types differ in when revenue from jobs is posted to the Income Statement. Relate Completed Contract to an accounting method, as in an inventory valuation concept such as LIFO or FIFO. It is not up to the installer of accounting software to suggest a change from the current method without approval of the firm's CPA. Completed Contract is 8

9 only available to firms with less than $10,000,000 of annual revenue (Federal Law) and states that revenue and cost will be shown on completion of the job and not as billed or earned. Therefore advance billings are capitalized on the balance sheet by posting to a liability account rather than a revenue account and all cost and expenses associated with that revenue must be held on the balance sheet (Work in Process, Asset Account) until the job is completed. Percent Complete recognizes revenue when billed where as Completed Contract recognizes revenue upon completion of the project. BANK DRAW: Yes we do print the AIA (Architect Institute of America) Application for Draw from G703 format as a standard feature of the Data Pro Job Cost Main Module. A General Contractor doing speculative home building with backing from a bank most often uses this billing type. You spend "" amount of money on a job and then go to the bank for a draw against that job. The contractor provides formal documentation of money spent ant the bank makes a loan against that cost. The loan is not a billing yet a loan, and is show on the liability side of the balance sheet. It has no effect on Work in Process values. Data Pro also offers a Draw based on Billing Amounts. Draws based on Billing Amounts are not really a Bank Draw, but are very commonly used by a builder that either is obtaining his Draw directly from the buyer of the house and is also drawing his profit on that segment of construction. Or the sub-contractor to the General Contractor is placing the Draw and that Draw also contains the sub-contractors margin. A Bank Draw based on cost requires no budget, it only asks for hard cost incurred to be replenished. A Bank Draw based on billing amounts does require a budget. The suggested Draw is based on the same formula as the suggested billing amounts calculated by either the Percent Complete method or Completed Contract. PERFORM BILLING: The Data Pro Job Cost system will give the Billing Calculation Capability and the Suggested Billing Worksheet from either the Job Cost Main Module or from the Job Cost Accounts Receivable Module. Use AR if you have it. We discussed the different buckets in Cost Codes in the Cost Code section of this document. The calculated billing for a project is based only on amounts in the "Current" bucket of a cost code. This allows for an unlimited number of progressive billings on a project with no predetermined cycle or time frame between those billing. The billing is calculated on "Current Amounts" only, which is defined as amounts entered since the last billing was performed plus any amounts that were carried as "Balance Forward" at the time of the last billing. You must always "Calculate Suggested Billing" before "Performing Billing" in order to clear the "Current Amounts". After calculating the billing it is strongly suggested that you print the "Suggested Billing Worksheet" before selecting the option "Enter / Adjust Suggested Billing". If you desire to input a manual billing with no system calculations, then just go to the AR option "Perform Billing" and hit the F10 key in the invoice detail screen and tell the system which Project and what Cost Codes on that Project to put the billing dollars and quantities into. This can also be done in the Job Cost Main Module without AR with the options 1) Enter/Adjust the Billing2) Update Billing Information. You still must "Calculate Billings" before entering the billing if you desire to clear the "Current Amounts" to Cost of Sales during the billing process. 9

10 OVERHEAD The overhead percentages for a job are defined in the Project Master file. There is a separate percentage for overhead from payroll and overhead on all other cost. Payroll overhead is calculated by the payroll system based on the payroll overhead percent set up in that job. It is automatically posted to WIP just like the gross wages figure. The debit to WIP is offset by a credit to the Overhead expense credit account set up in the payroll general ledger accounts. Other overhead is calculated only when you select the menu option to post overhead in the job cost main module. This overhead is calculated on "Current Amounts" in all codes that do not have an "*" imbedded in the cost code. The calculated amount is then put into the overhead cost code as defined in the job cost master configuration. Unlike payroll overhead, there is NO accounting created for this overhead. It is strictly a memo cost shown on all reports. If you do not want to post double overhead on you labor cost, then you should put an "*" into labor cost codes. The menu option should be selected immediately prior to creating each billing. If you first create the billing you will clear current amounts from the cost codes and therefore get no overhead. SUMMARY Cost Codes control the flow of dollars and quantities through a Project, the flow of dollars to the General Ledger, the format and total / sub-total capability of job cost reports and the format of your accounts receivable billings. Different types of cost codes are needed depending on the billing type of the project. The user has complete control over where dollars are posted and what will be billed. Some characteristics of your cost codes will change depending on which modules a customer is running. 10