A cost object is a dimension integrated into the General Ledger (GL) account for work in progress, which can be configurable. This dimension is utilized to segregate the balance of work in progress according to various criteria.
Work in Progress (WIP) is a balance sheet account where expenses accumulate until they are recognized, typically used in production or long-term contracts. This approach prevents immediate expense recognition from distorting profit and loss statements. This ensures precise tracking and alignment of expenses and revenue.
To enable this feature, go to Settings > Production Settings > Advanced Product Costing. Here, you can specify the criteria for accumulating work in progress. Accumulation can be based on different factors, such as customer orders, item/service level, project, or project task.
A cost object functions as master data within the accounting system. It is listed in the Chart of Accounts under the Work in Progress section of the inventory group. When you use a cost object, its effects will be visible in the General Ledger and will be detailed in the trial balance report.
Working with Cost Objects as a Dimension:
Create an Invoice: Record the expense and ensure that the General Ledger (GL) account associated with this service item is designated as a Work in Progress. When you select the Work in Progress (WIP) General Ledger (GL) account, the Cost Object field will become available. This field will display a new master data list where all levels set in the settings will be shown.
For example, if you include a project, you can either keep the default description or modify it as needed.
Post the document once all the details are filled
After posting the document, the amount will be reflected in the WIP account, and the cost object will be visible in both the General Ledger and the Work in Progress register cost object.
This can be applied to various documents as outlined below:
The Cost Object, used as a dimension, is included in all documents that track Work in Progress (WIP). These documents include:
- Invoices
- Employee and expense reports
- Inventory and production records
- Payroll and benefits calculations
- Fixed asset transactions
- Custom and other expenses
At month-end closing, the process will depend on the cost object settings. You can review how costs are allocated during month-end closing by going to Cost Allocation Settings under accounting.
Select the WIP GL account and configure the cost allocation settings by cost object. Check the box for "By cost object" and add the relevant cost objects. You can choose options like closing directly to profit and loss, allocating costs, or not allocating at all.
If you choose to allocate costs, you can adjust the method and consider the cost object.
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