Is my business a going concern and if so what items should I be accumulating?

Are you hoping that your business stops completely at the end of this month? If the financial crisis is affecting you, the answer may well be YES. However, most of us are in business for the foreseeable future. We’re working with a “going concern” paradigm. What that means is that at the end of every month we’re likely to have unfinished tasks which are commonly known as ‘works in progress.’

So what would I have in Work In Progress? What would be accumulating in my books relating to that?

If you’re a manufacturing business the answer is simple. All the work left in your factory which is part-finished.

But what about a service company, a law firm or an accounting firm?

Again, there will be assignments and ongoing work which have been done but have not progressed far enough to bill clients. These should be accumulated in work in progress.

What about a project management business?

This is quite easy. It’s all the amounts spent on jobs which can not yet be invoiced to customers.

While all this sounds logical, when it comes to the book keeping everything gets a little haywire! Many book keeping systems work on a cash basis, so whenever a purchase is made it goes in the COST OF SALES. That is code for ‘written off’! No wonder people have difficulty working out their profit. It’s a mis-match of revenue and cost items which bear no resemblance to each other. What a great fruit salad!!

Every business has work in progress of some sort. If you are not accumulating any in your books then they are not a true reflection of what’s really happening in your business.