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QUESTION: If we were to restore a work in progress write off from a prior year will my financials change?
Example: A WIP write off was done July of last year. If I restore the WIP today, does it restore as of today or does it restore as of July last year and change last year’s financials?
How do I restore WIP written off last July (whose time entries were dated 4 years prior) today, without it affecting prior financials?
RESPONSE: If you restore a WIP write off with a write-off date in a prior year, the restore action will be treated as a correction, affecting your WIP position as at the transaction date of the entry.
Using your example, if a time entry dated four years ago for a matter written-off on July last year, and restored today, the WIP will change (increase) as of the date of the transaction from 4 years ago.
Many of our clients have removed the journalizing of time entries in favor of monthly reversing journal entries to record the change in WIP, a process that includes WIP changes (like WIP WO and reversals) in the current period.
Many firms limit the use of WIP write offs to the capture of end-of-life entries that can no longer be billed as a way to control this type of activity and to eliminate the potential for restoring WIP write offs for out of period time entries. These WIP write-offs have very limited values to ensure that the impact on efficiency gains and losses to the hour worked is fairly presented using other tools like write-downs to 0.00 or 0.00 value invoices for on-going matters, internal credit notes when the WIP is larger and can no longer be billed or doing billing WIP at full value and then completing an AR Write offs to reflect bad debt expense. We include a concept document that highlights these options in case you would like to consider them in the future as a well as a reference note document intended for the end user.
For this situation, the restore will affect the period ending four years ago. To rectify the GL position for that year and every subsequent year, you will need to transfer the financial impact to this year using reversing journal entries. The first entry for an amount that removes the impact of the restore on WIP should be made dated December 31, four years ago and reversing on January 1st of the subsequent year. The process must be repeated at the end of each subsequent year. Alternatively, if the amount is immaterial you may want to leave it as is.
OTHER DOCUMENTS: