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WIP is an accounting term and stands for Work in Progress. WIP is making provision to pay for expected costs. If you don’t keep track of your expected costs, you could end up spending too much money and not have enough to pay for those costs. For example, you make a sale for R500, but you know you are expecting a R 250 cost. You keep the R 250 aside so that you do not spend it until you need to pay the relevant supplier.

To explain WIP we will be using the matching principal as there needs to be consistency in the Income Statement and the Balance Sheet. 


Matching Principle: The Matching Principle states that all expenses must be matched in the same accounting period as the revenues they helped to earn. This is done to create consistency in the Income Statements and the Balance Sheets. In the scenario below, we are going to look at two revenue models and how they affect the Balance Sheet and Income Statement.


Balance Sheet: holds your assets, liabilities or capital. 


Income Statement: is all about your income and expenses.


Revenue Models

There are two ways of declaring revenue, using the Optimistic and Pessimistic model. 

  • Revenue on Billing: Declare revenue upfront. With this model, revenue is taken to the Income Statement at the time of billing and super profit/loss taken at Job Closure. 
  • Revenue on closure model: Declare revenue at various stages throughout the job cycle or declare at Job Closure or declared. With the pessimistic model, all revenue is taken to the WIP (holding) account at the time of billing and revenue moves to the Income Statement at the time of Job Closure. 

In the scenario below, we are going to look at Chase Documents, the Revenue models and how they affect the Balance Sheet and Income Statement. 


 Revenue on Billing model

In the scenario below the amounts stated do not include Tax to simplify the scenario. The scenario consists of the following:

1. In Chase, a Cost Estimate of R 2 000 is created with:

    • an external cost of R 1 000 marked up at 20%, amounting to R 1 200
    • one internal work type amounting to R 800.

2. A Cost Estimate is fully billed resulting in a Tax Invoice of R 2 000.

3. A Purchase Order and resulting Supplier Invoice for the external line item for R 930 (ie. less than the estimated cost).


 Step 1 (Client Billings)

In Chase, a Cost Estimate is created based on the scenario above and fully billed. In this example, we will be focusing on the two amounts highlighted on the Tax Invoice.

This is how the Balance Sheet and Income Statement will be affected.

Debit (Dr column) the Debtors account with R 2 000 and credit (Cr column) the Sales/Billings account with R 1 200 and R 800.

Once the Sales/Billing in the Income Statement gets affected, this means that we are declaring revenue. Using the matching principle, for every revenue value declared you need to match it to expenses incurred.


Debit (Dr column) the Cost of Sales with R 1 000 and credit the WIP account with R 1 000.

 Step 2 (Supplier Invoice)

A Purchase Order was sent to the supplier which resulted with the agency receiving a Supplier Invoice back. The Supplier Invoice for the external line item for R 930 (ie. less than the estimated amount) was captured in Chase.

This is how the Balance Sheet will be affected.

Debit (Dr column) the WIP account and credit the Creditors account with R 930. This is in effect moving the cost from an expected cost, to an actual cost.

 Step 3 (Job Closure)

We can now go ahead and close this job bag. By doing so it will create a cost variance statement, which will capture our super profit as well as set the WIP balance of this job bag to 0 as it is now closed.


This is how the Balance Sheet and Income Statement will be affected.

Debit (Dr column) the WIP account and credit the Cost of Sales account with R70.

In this scenario, we have made a super profit of R70 which will show up on the Cost Variance statement.

The R 70 on the Cost of Sale account can be deferred to a different account. This amount can be left in the Income statement or in a different account specified by the agency.

Debit (Dr column) the WIP account and credit the Cost of Sales account with R 70.

In this scenario, we have made super profit of R 70 which will show up on the Cost Variance statement.

 Chase Reports

This will show up on the following Chase reports:

Recon Statment


WIP report


 Revenue on closure model

In the scenario below the amounts stated do not include Tax to simplify the scenario. The scenario consists of the following:

1. In Chase, a Cost Estimate of R 2 000 is created with:

    • an external cost of R 1 000 marked up at 20%, amounting to R 1 200
    • one internal work type amounting to R 800.

2. A Cost Estimate billed at 50% resulting in a Tax Invoice of R 1 000.

3. A Purchase Order and resulting Supplier Invoice for the external line item for R 1 100 (ie. more than the estimated cost).


In this example, we are going to declare a portion as the job progresses.


 Step 1 (Client Billings)

In Chase, a Cost Estimate is created and billed at 50%. In this example, we will be focusing on the two amounts highlighted.


This is how the Balance Sheet will be affected.

Debit the (Dr column) Debtors account with R 1 000 and credit (Cr column) the WIP account with R 600 and R 400.

 Step 2 (Supplier Invoice)

A Purchase Order was sent to the supplier resulting in a Supplier Invoice for the external line item for R 1 100 (ie. more than the estimated amount)

This is how the Balance Sheet will be affected.

Debit (Dr column) the WIP account and credit (Cr column) the Creditors account with R 1 100.


 Step 3 (Provisional margin declaration)

This is what the WIP account in Chase will look like.

This is how the Balance Sheet and Income Statment will be affected.

Debit (Dr column) the WIP account with R 600 and R 400.

Credit (Cr column) the Sales/Billings account with R 600 and R 400.

Debit (Dr column) the Cost of Sales with R 500 and credit the WIP account with R 500.

 Step 4 Before Job Closure

Ensure that all billings to the client have been done and your suppliers are paid.

For this example, we only billed the client 50% so we need to bill the rest.

Bill the rest of the cost estimate (50%).

Debit (Dr column) the Debtors with R 1 000.

Credit (Cr column) the WIP account with R 600 and R 400.

Debit (Dr column) the WIP account with R 600 and R 400.

Credit (Cr column) the Sales / Billings account with R 600 and R 400.

Debit (Dr column) the Cost of Sales account with R500 and Credit (Cr column) the WIP account with R 500.



 Step 5 (Job Closure)

If you close the job bag at this stage this is what the Cost Variance Statement will look like.

Debit (Dr column) the Cost of Sales with R 100 and credit (Cr column) the WIP account with R 100.

 Chase Reports

This will show up on the following Chase reports:

Recon Statment


WIP report






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