Case: The balance recorded in the Work in Progress GL account from the invoice received must be transferred to Fixed Assets cost, which will then be subject to depreciation.
Solution: Create a Work in Progress adjustment document and record a capital improvement entry to Fixed Assets, followed by depreciation using the Month-end closing document.
In this example, the Invoice received is recorded with expenses allocated to the GL Work in Progress account. Work in Progress (WIP) in Fixed Assets encompasses costs incurred in the acquisition or construction of an asset that is not yet complete, including materials, labor, and overhead. These costs are classified as WIP until the asset is finished and ready for use, after which they are transferred to the Fixed Assets account and depreciated over the asset's useful life.
The installation cost is added to the expense tab of the invoice received, with Gl work in progress—main production.
The below entry was created i.e. Dr Work in Progress-Main Production
Cr Current trade payables
- Create WIP Cost Adjustment Document- The user can manually close WIP accounts by transferring WIP costs to expense GL accounts, Construction-in-Progress, and Capital Improvements accounts, or adjust costs between WIP accounts as needed. Here, the WIP value will be transferred to the Capital improvement account.1
These documents are available if the Advanced Product Costing option is activated in Administration > Settings > Production, with cost objects selected from Items, Projects, Project Tasks, and Customer Orders.
Enable the Capital Improvements to Fixed Assets option in Administration > Settings > Asset Management to use the Capital Improvements GL account for WIP cost adjustments.
Create a new WIP Cost Adjustment document and enter the entity details on the main tab.
On the WIP tab, click Fill to populate all WIP balances, or click Pick Work in Progress to select specific WIP balances.
Select the Capital Improvement to Fixed Assets GL account in the Dr GL Accounts column. Add the dimension for the fixed asset that will receive the improvement, and choose the corresponding expense item.
The entry will be Dr Capital Improvements to Property, Plant, and Equipment
Cr Work in Progress-main production
- Create capital improvement to fixed assets document, to transfer the balance from Capital improvement GL to the fixed asset. To know more about this document refer to Capital Improvement to Fixed Assets
Go to Asset Management> Capital Improvements to Fixed assets
Create a new document and input the necessary details in the main tab. Next, go to the fixed asset tab, click "Add," and select the fixed asset; most fields will be auto-filled. In the lower pane, add the expense by using the "Fill" option to automatically populate the expense details. Select the relevant expense or enter it manually if required.
Once the expense is added, the gross cost and depreciable cost will be revised.
The below entry will be created
Dr Fixed assets at cost
Cr Capital improvements to PPE
- Review the effect of the transaction in the respective GL i.e. Capital Improvements to PPE and Fixed assets at cost.
Once the capitalized cost is recorded as a fixed asset, depreciation will be calculated at the end of each month during the closing process.
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