Explore Progress Billing for Construction Sample for Banking to Streamline Your Projects

Progress billing for construction sample for Banking

so why are we doing what we're doing great question we'll go over why in this video so the whip the Whip the whip the Whip why are we doing this work in progress schedule what does it mean all that stuff so in this example we've got the bill to date on the contract cost to date on the contract let's assume from January 1 to December year 1 Let's calculate gross profit on that job assuming this is just the activity and there's nothing else we're not factoring in contracts we're just saying gross profit whatever is hitting your income statement that's 71% you build out 177,000 you got costate to 5,000 you're recognizing all of the 177,000 as Revenue okay so there's no whip that skews the information here so what this is saying is you've build more so you're going to recognize this gross profit what whip does is it balances out your gross profit so you evenly recognize profit over the life of the job or the duration of the job so over here we've got the contract amount of 25,000 and the estimated cost of 11,000 the total gross profit on this job is 56% what the whip does is either pumps the brakes or puts the foot on the gas and saying wait a second in this example without whip you're recognizing 71% that doesn't make sense because the total you technically will recognize over the course of the job is 56% so you're being a little aggressive here just because of timing you build more in the current year than you had cost so we're trying to cancel out all that timing nonsense we don't want to see this roller coaster of profit uh go up and down year to year just because of the timing of the activity the whip cancels all that timing activity out and says I don't care how much you build I'm interested in the costs incurred and the estimate to say hey 56 % is the amount of gross profits you can recognize so regardless of how much you build out I'm going to carve out or add on more Revenue to to balance it so in this case instead of 71% gross profit we're going to recognize 56 so what do we do to revenue to decrease it we debit it and so here we debit revenue and we credit this over over Billings you're over billing you've build ahead of where you should be um and that's a liability so debit Revenue credit the liability 5 636 well let's do this example let's follow this let's see if this is all making sense so imagine here we subtract out this over Billings amount and obviously we're going to cancel out the costs and then we're going to same thing here with the billing minus the over billing because we want the total amount look at that 56% so when you carve out 5,636 from this bill to date of what you were originally recording as revenue and you calculate gross profit it balances out to 56 so you can see it's evening things out that's the whole point of all this and something similar can be said for the opposite the under Billings so let's get rid of this amount here and say we've build $7,000 we'll keep the cost to same the same calculating gross profit just based off a bill to date and the cost is 29% wait a second your p&l is going to be way skewed uh we want to get to that 56% gross profit well that's what under Billings does it adds to your Revenue so you credit revenue and you debit under Billings it's an asset so that increases your Revenue which in our case as we're calculating this we're going to add 436 four then we're going to minus the cost then we're going to divide it by the bill to date plus the under Billings again and what do we get 56% so you see it's the same concept with the under Billings doesn't matter how much you've build out by a certain time it's all driven by Coston estimates your total estimated gross profit so this is just trying to cancel out timing issues otherwise you'd be up really high one year down really low the next just based off of when you got around to billing we don't want to do that not saying that profits don't gain or fade over the years but we don't want it to be based off of the timing of our billing so that is whip in a nutshell thank you for tuning in and I'll see you in the next lesson