When to Use Mid-Month Billings - CMW software



The New Approach – Project Estimates

Author: Steve L. Seawall, CPA Copyright 2016 Custom Micro Works All rights reserved

Revised 12/15/2016

Overview

NA is a full-featured, user-friendly, accurate, and efficient financial accounting system. The project estimating and related customer invoicing procedures are a part of that system.

The NA Project Estimate feature is designed primarily for use by small businesses that wish to provide a formal estimate to potential customers for service type projects. Such estimates are often required in instances where an insurance company is paying for part or all of the related work, including parts, materials, and supplies.

The estimating feature is integrated with the overall accounting system, including payroll. At the same time, however, it can conveniently be integrated with online (external) estimating applications that are tied to industry-specific estimates. Reliance on these external estimating procedures can be a significant time saver. The general problem with them is that it is often difficult, or impossible, to integrate external estimating procedures with the accounting system.

• Set Up Business Funds. All Project Estimates MUST be assigned to a business segment of the accounting entity. Each business segment has a specific Business Fund that segregates and accumulates all financial transactions for the business segment, including those of Project Estimates assigned to the business segment.

For the life of the project, from creation to closure, the project’s actual expenditures are segregated and accumulated in the “temporary” Project Fund. When the project is completed and closed out, the project’s related actual expenditures are exported from the Project fund to the Business fund.

• Business Segment Detail. Each Business Segment has very specific general information unique to that business for both internal and external reporting purposes. This includes information required for Project Estimates.

To enter business segment detail information for each of the accounting entity’s business funds use BA/Setup/Business Funds. Select the Business Fund, click on Edit, and click on Business Segment Detail.

Before Your First Project Estimate

Before you create a Project Estimate, you must perform a few “setup” requirements.

• Create a Customer Account. Use AR/Setup/Customers. This is a requirement for every new customer.

• Create Standard Contract Terms – for Project Estimates ONLY. Use AR/Setup/General Information to create standard “Contract Terms” that will populate automatically when the project estimate is first created. You will have the option to modify the terms at that time. Or, you can change the standard “Contract Terms” at any time.

• Create Standard Payment Terms – for Project Estimates ONLY. Use AR/Setup/General Information to create standard “Payment Terms” that will populate automatically when the project estimate is first created. You will have the option to modify the terms at that time. Or, you can change the standard “Payment Terms” at any time.

• Sales Tax Codes – for Product and Service Items Added to Chart of Accounts. Use AR/Setup/Payment Terms and Discounts. At least one Sales Tax Code should be created for use when you sell a Product Item or a Service Item that is subject to sales tax. If different items are subject to a different sales tax rate, separate Sales Tax Codes can be created for each requirement and assigned accordingly. There are no limits on the number of codes.

• Standard Payment Terms – for Product and Service Items Added to Chart of Accounts. Use AR/Setup/Payment Terms and Discounts. At least one Standard Payment Term should be created for use when you sell a Product Item or a Service Item. If different items are subject to a different payment terms, separate Payment Terms can be created for each requirement and assigned accordingly. There are no limits on the number of different payment terms.

• Chart of Accounts – Internal Products (Parts) and Services (Labor). Use AR/Setup/… to create/edit Product and Service Classes, Product and Service SubClasses, and Product and Service Items.

Suggestion: During startup, try to avoid setting up an “Internal” set of products and services in the chart of accounts. Instead focus your attention on getting familiar with the overall Project Estimating system working with small Project Estimates and using “External” products and services. If you would then like to set up some “Internal” products and services, you can contact technical support for assistance.

• Chart of Accounts – Customer Invoicing Simplified. The customer invoicing procedure is a critical step in the overall financial accounting process because it clearly establishes an account receivable in the customer’s account, and thereby, creates an automatic cash tracking of the customer payment.

Be careful NOT to confuse the customer billing invoice with the Project Invoice Detail. The two documents are very different and have very different purposes.

Project Invoice Detail. The project invoice detail is a final accounting of the project and should clearly document any possible differences between what the customer is be charged and the original project estimate. The invoice detail should also document the amount the customer is being billed for. It serves as an attachment to the customer billing invoice prepared for the customer.

Customer (Billing) Invoice. The customer billing invoice is a formal request for the customer to pay for the project in accordance with the payment terms. It documents an account receivable for the customer which is critical to tracking the customer’s payment(s).

Create Invoicing Accounts. To create a set of accounts for invoicing completed Project Estimates follow these steps using AR/Setup:

First, be careful. Once you create an account you should never delete it. Instead you should inactivate it. If you use an account in the accounting system and then later delete the account, you can create problems for yourself.

Step 1. Create a Service Class (10 Project Estimates)

Step 2. Create two Service SubClasses (11 Vehicle Projects and 12 Construction Projects)

Step 3. Create Service Items, such as for example:

111 Body Work Project

112 Paint Job Project

113 Mechanical Work Project

121 Remodel Kitchen Project

122 Deck Project

123 Roofing Project

Alternatively you can have a single Service Item for each type of project, such as for example – Vehicle Projects (for all vehicle related projects) and Construction Projects (for all construction related projects).

Measurement Unit: use Project.

Select the Business Fund related to the type of project.

Select a Receipt Code such as Services.

Important: Before the customer takes possession of the finished project a customer invoice should be prepared for issuance to the customer. If you do not have an invoice, it can be prepared later and mailed to the customer. However, if the customer chooses to pay for the project immediately, you should record the payment and issue a customer receipt like any other customer payment. But, do not process the payment in the AR system until after the customer billing invoice has been created.

Contact Technical Support for Assistance. For training purposes, please contact technical support for assistance on how to prepare for your first Project Estimate customer billing invoice. It should take only a few minutes.

Project Estimating Procedures – From Creation to Close Out

• Step 1 – Create a Project Estimate. Use AR/Create and Edit Project Estimates.

Project Description. Given the type of project, 1) use a consistent format, and 2) use three or more descriptive features to avoid repeating the description in a future project! For example, for a vehicle project you could use the format: Year Make Model (e.g., 1964 Ford Mustang). For additional descriptive terms, you could use the color or style of the vehicle, or the type of work such as Paint, Brakes, Body Work, Windshield, etc.

Project Fund Number. ALWAYS use Auto-Select Fund Number. Do not enter a random fund number without first consulting technical support!

Date of Estimate. Technically speaking, this is the date you provide the estimate to the customer.

Date of Completion. This is actually the “estimated” date of completion and is so-stated on the Project Estimate.

Customer Deposit. If the customer gives you a deposit, it should be entered here.

Adjustment. If for whatever reason you want the give the customer a credit adjustment on the project, it should be entered here.

Legal ID Number. This is optional. Typically for a vehicle project you would enter the vehicle’s VIN.

Insurance Number. This is optional. There is space for 24 characters.

Contract Terms. “Standard” Contract Terms that you have created under Setup will populate the textbox. You have the option to modify all or any part of the terms.

Payment Terms. “Standard” Payment Terms that you have created under Setup will populate the textbox. You have the option to modify all or any part of the terms.

Important: Do Not add any Project Estimate Detail Line Items at this point!

• Step 2 – EDIT New Project Fund. Use BA/Setup/Business Funds. Select the new fund and press Edit. Review the information, but no changes should be required.

Fund Assignments. Use BA/Setup/Fund Account Code Assignments. Select the New Fund and assign the various account codes to the selected fund.

Review the default assignments. If you see some assignments that you are fairly sure you will not need, you can “remove” the assignment. Keep in mind that if you remove an assignment, it can be re-assigned later.

• Step 3 – Payroll Pay Types. Use PR/Setup/Pay Types. A new pay type with the Project Description has been added to the listing. Select the new pay type and press Edit.

Edit New Pay Type. For the new pay type, one fund is being charged 100 percent. This provides assurance that any time reported for an employee under a “Project Estimate” type fund will not inadvertently be charged to another fund. You must select a department code and an object code (Salaries and Wages) for this pay type.

One pay type might be sufficient for all employees that might work on the project. This is possible because when the pay type is assigned to an employee, you set the rate of pay for that employee only. Put another way, the same pay type can be assigned to two or more employees and a different hourly rate can be used for each assignment.

If you wish to set up additional project-specific pay types to distinguish between the type or skill level of work being performed, that simply requires adding a few new pay types. Please contact technical support if you need assistance.

Add Employee Pay Type Assignments. Use PR/Employee Data to assign one or more project-related pay types to employees that will be working on the project. Keep in mind that after the project is closed out the project related pay types can be inactivated (do not delete).

• Step 4 – Add “Internal” Project Estimate Detail Line Items. There are two types of Internal detail line items – 1) Products (i.e., parts), and 2) Services (i.e., labor). “Internal” means the related products and services are identified in the accounting entity’s inventory of product items and service items as created in, and selected from, the chart of accounts (see AR/Setup/…).

Select a Detail Line Item - either a Product Item or a Service Item.

Enter the Number of Units.

Press Extend Item Totals.

Press Update Line Item.

Repeat for another line item.

When finished, press Return to Menu. Additional items can be added later.

• Step 5 – Add “External” Project Estimate Detail Line Items. There are two types of External detail line items – 1) Products (i.e., parts), and 2) Services (i.e., labor). “External” means the related products and services are NOT identified in the accounting entity’s inventory of product items and service items. Instead External detail line items are entered in ad hoc or free-lance format.

Enter a Product or Service Description.

Enter a Product or Service Reference Number, if applicable.

Enter the Number of Units.

Enter the Price Per Unit.

Press Extend Item Totals.

Enter the Sales Tax for the line item, if applicable.

Press Update Line Item.

Repeat for another line item.

When finished, press Return to Menu. Additional items can be added later.

• Step 6 – Create a Project Invoice. Use AR/Create and Edit Project Estimates. Select a Project Estimate and Press Create/Edit Project Invoice.

Important: The purpose of the Project Invoice is to continuously build on the original Project Estimate additional (supplemental) charges to the project that were not included in the original estimate. The Project Invoice documents what the customer is ultimately paying for. At the same time, only the total amount of the Project Invoice will be recorded in Accounts Receivable and Budgetary Accounting for billing and collection purposes.

Notes (Business Rules):

Note 1. The Project Invoice should not be created until after the Project Estimate has been finalized and presented to the customer.

Note 2. The Project Estimate should not be changed after it has been presented to the customer.

Note 3. The Project Invoice created in this procedure is virtually identical to the Project Estimate from which it was created.

Note 4. The Project Invoice can be edited much like the Project Estimate. This includes adding new “supplemental” Project Invoice Detail line items.

Note 5. If the Project Estimate needs to be altered in any way, you have a couple of options.

Option 1. Retrieve the original Project Estimate, make necessary changes to it, and then re-issue it to the customer. Contact technical support for assistance.

Option 2 (Recommended). Make the necessary changes to the Project Invoice, but not to the original Project Estimate. Any detail line items added to the Project Invoice will automatically be designated as “supplemental” items (i.e., “Sup-Products” and “Sup-Services”). Such items will be clearly distinguishable from the original Project Estimate detail line items.

Note 6. When the Project is completed, the “Project Invoice Detail” will be an attachment to the actual billing invoice presented to the customer for payment. This procedure allows the customer to view the original Project Estimate and visibly compare it to the “Project Invoice Detail”.

• Step 7 – Close Out Project. Use AR/Create and Edit Project Estimates. Select a Project Estimate and Press Close Out Project.

As a cautionary measure, you probably should wait until you receive payment before closing out the project.

The closing process saves both the original Project Estimate and the finalized Project Invoice, including detail line items. Also, the expenditures accumulated in the Project Fund are “transferred” to the related Business Fund, thereby allowing the Project Fund for the completed project to be inactivated.

Suggestion: Close out Project Funds only as a part of the BA month-end reconciliation procedures.

Step 1. Perform the BA monthly reconciliations and print the month-end financial statements.

Step 2. Proceed with closing one or more Projects and re-print the month-end financial statements. An analysis of the re-printed statements reveal the closed Project Fund with all expenditures zeroed out. At the same time, the total expenditures in the related Business Fund should have increased by the amount of the closed fund’s total expenditures.

Integrating an Online (External) Project Estimating System

If you use an online estimating system, the resulting estimate does not have to be re-entered into the NA Project Estimate. Instead, you would simple “incorporate” the online estimate by reference. That is, you would simply create a single detail line item in the NA Project Estimate that makes reference to the online estimate as an attachment. If the online estimating system allows you to add “supplemental” items to the original estimate, that is recommended so long as the new items are clearly distinguishable from the original estimates, and they likely are.

By incorporating online estimates with your NA Project Estimate you gain tremendous advantages. First, the online estimating can provide accuracy and efficiency to your overall estimating procedures. Second, by creating a formal NA Project Estimate you can conveniently isolate and accumulate all direct expenses, both payroll and non-payroll, for the project. Without this integrated feature in your accounting system it is next to impossible to track actual project costs. That means you are only guessing about the profitability of individual projects.

Project Estimate Sheet Date ________________

Customer

Name _________________________________________________________________

Address _________________________________________________________________

_________________________________________________________________

Phone _________________________________________________________________

Description No. of Units Unit Type Unit Price Total

1)_________________________________________________________________________

2)_________________________________________________________________________

3)_________________________________________________________________________

4)_________________________________________________________________________

5)_________________________________________________________________________

6)_________________________________________________________________________

7)_________________________________________________________________________

8)_________________________________________________________________________

9)_________________________________________________________________________

10)________________________________________________________________________

11)________________________________________________________________________

12)________________________________________________________________________

13)________________________________________________________________________

14)________________________________________________________________________

15)________________________________________________________________________

16)________________________________________________________________________

17)________________________________________________________________________

18)________________________________________________________________________

19)________________________________________________________________________

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