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Work in Process as a Control Account

Construction Industry Standards / By David J Hoare MSA / 09/16/2015 11/21/2020

This site is dedicated to the investment strategy known as Value Investing. There are over 580 articles on this site about business tenets, principles and standards. During 2020, this site’s Value Investment Fund earned a 35.46% return. All of it was documented in the Value Investing Section. If you want to learn about value investing, click on the Value Investing tab in the header above.

Minimum Bottom Line Profit Should Average 9.4%!
For Trades & Subcontractors, at Least 11%
After Income Taxes Are Paid!

A control account in the Chart of Accounts is used when there is a need to separate multiple third parties with a similar function. Work in process works perfectly as a control account.

In this article I’m going to explain the old method used to track projects and how the control account makes entering data faster. But more importantly retrieval of project information remains alive even after completion of the project.

This article is just one of over 70 articles about the construction industry. For additional information and guidance, please explore this section of the website. Other articles cover job costing along with financial reporting; estimating principles, project management, office operations and more.

Learn more by clicking on the image or if you want, contact the author directly: dhoare@comcast.net.

Historical System

The method used in the past and still used today by some bookkeepers is the parent-child system for account structure. A master account is created in lieu of an account for each project. Then a child account is created for each project as an extension similar to below:

Account Number                 Description
1200 – Work in Process         Master Account
1200-01 Project ‘A’               Smith Family Room Addition
1200-02 Project ‘B’               Carson Family Bathroom Remodel

This system works well as the values in the respective child accounts equal the total value in the parent account, i.e. the children feed information to the parent.

So what are the drawbacks?

During the closing process when the project is complete the values in the child account are summed up based on groups of cost such as materials, labor and subcontractors. A corresponding credit value for each group is included in the child account as the debit is transferred to the respective costs of construction. Now the value in the child account is nulled out to zero. So any chance of reviewing details about the project in the future have been cleared out the child account.

So what is a better solution?

Value investing utilizes a buy low, sell high tenet of systematic processing with buying and selling stock investments. Along with patience, value investors reap substantially greater returns than most of the market measurment indices (DOW, Russell 2000, S&P, etc.). During 2020, this investment fund earned a 35.5% return while the DOW generated a 6.0% return. To date, the Investment Fund is 2.8X the return of the DOW and 2.5X the S&P 500 and the Composite 1500 Index. When you subscribe, you receive access to all existing articles, books, lessons, webinars and reports explaining how value investing works. For more information, click here: Membership Program.

In addition, each week, the subscriber receives additional articles, reports and buy/sell points for high quality stock purchases. Follow along as the fund updates regularly and discover how to invest like a pro and earn excellent returns on your investment.

Subscription ($99.99) is for one year of access to the value investing pool of information and formulas.

REGISTER NOW!

Control Account

This is very similar to the parent-child configuration. With control accounts, subsidiary accounts are used and not sub-accounts. With a control account in the Work in Process (WIP) the project identifier is the subsidiary account, just like customers in accounts receivable. So at the point of entry, you simply choose the WIP account ID which is usually a numbered identifier like 1200 and then enter your data. Somewhere in the entry field is the customer identification or project ID number (projects are treated like customers). This posts the information to the WIP account, specifically to the project just like the parent-child configuration.

*In QuickBooks, the job name is used instead of customers and the field to select the job is all the way to the right on the entry screen.

The advantage of this system is in how the closing process is conducted. The key is for the project to retain the original entries so that in the future you can compare similar projects or review a particular closed project.

The site goes into extreme detail about the transfer process of costs in WIP to the costs of construction section of the income statement. Please read: TRANSFERRING COSTS FROM WIP TO COST OF SALES.

The secret is that in the transfer the dollar values are not assigned to a subsidiary account (job or customer ID) but are assigned only to the control account ID (WIP or Account Number for WIP). This way the subsidiary retains information in it as if it were still active. But the main value in the control account remains correct in the aggregate.

This form of managing work in process is extremely helpful when using phase account and class accounting. ACT ON KNOWLEDGE.

Value Investing

Do you want to learn how to get returns like this?

Then learn about Value Investing. Value investing in the simplest of terms means to buy low and sell high. Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.

There are four key principles used with value investing. Each is required. They are:

  1. Risk Reduction – Buy only high quality stocks;
  2. Intrinsic Value – The underlying assets and operations are of good quality and performance;
  3. Financial Analysis – Use core financial information, business ratios and key performance indicators to create a high level of confidence that recovery is just a matter of time;
  4. Patience – Allow time to work for the investor.

If you are interested in learning more, go to the Membership Program page under Value Investing section in the header above. 

Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each member goes through three distinct phases:

  1. Education – Introduction to value investing along with terminology used are explained. Key principles of value investing are covered via a series of lessons and tutorials.
  2. Development – Members are taught how pools of investments are developed by first learning about financial metrics and how to read financial statements. The member then uses existing models to grasp the core understanding of developing buy/sell triggers for high quality stocks.
  3. Sophistication – Most members reach this phase of understanding after about six months. Many members create their own pools of investments and share with others their knowledge. Members are introduced to more sophisticated types of investments and how to use them to reduce risk and improve, via leverage, overall returns for their value investment pools.

Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:

  • Lessons about value investing and the principles involved;
  • Free webinars from the author following up the lessons;
  • Charts, graphs, tutorials, templates and resources to use when you create your own pool;
  • Access to existing pools and their respective data models along with buy/sell triggers;
  • Follow along with the investment fund and its weekly updates;
  • White papers addressing financial principles and proper interpretation methods; AND
  • Some simple good advice.

Value Investment Club

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    Value Investing is the Absolute Best Wealth Accumulation Method.

    Value investing is a systematic process of buying stock at low prices and selling once the stock price recovers. Its foundation is tied to four principles:
      1) Risk Reduction
      2) Intrinsic Value
      3) Financial Analysis
      4) Patience
    Learn about value investing and gain access to lucrative information that will improve your wealth. Expect annual returns in excess of 20%. The investment club’s results during 2020 were 35.4% and year-to-date for the second year it is tracking well over 34%. Lifetime to date, the Fund is 2.8X the return for the DOW and 2.5X the S&P 500.

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    Value Investing is the Absolute Best Wealth Accumulation Method.

    Value investing is a systematic process of buying stock at low prices and selling once the stock price recovers. Its foundation is tied to four principles:
      1) Risk Reduction
      2) Intrinsic Value
      3) Financial Analysis
      4) Patience
    Learn about value investing and gain access to lucrative information that will improve your wealth. Expect annual returns in excess of 20%. The investment club’s results during 2020 were 35.46%. The investment fund outperformed the DOW by a factor of 2.8X, 2.5X the S&P 500 and 2.5X the S&P Composite 1500.

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