MYOB AO works on a First In First Out (FIFO) basis when allocating the billed amount against jobs.
Click  Image Added to allocate bill amounts using a Pro-rata basis. | UI Text Box |
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| Both these methods are bypassed if billing at transaction level. |
About the Pro-rata method This method is ideal if you are clearing the WIP balance totally. The pro-rata method allocates amounts against WIP entries, based on the percentage of the total WIP balance that the invoice amount represents. This is illustrated in the table below where the invoice amount is $1,000 and the total WIP is $1,500. Each WIP entry balance is reduced by two-thirds leaving one-third as the WIP entry balance. The pro-rata method spreads a write-off across all employees who worked on the job. Date | Employee | Amount | Allocation | WIP Entry Balance |
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30-01-12 | Tom | 100.00 | 66.67 | 33.33 | 02-02-12 | Dick | 200.00 | 133.33 | 66.67 | 03-02-12 | Harry | 300.00 | 200.00 | 100.00 | 04-02-12 | Tom | 400.00 | 266.67 | 133.33 | 05-02-12 | Dick | 500.00 | 333.33 | 166.67 | 05-02-12 | INVOICE 122 | -1,000.00 | | | Bill | 1,000.00 | | Write off | 0.00 | | Total WIP | 1,500.00 | | Proportion | .67 | | Closing WIP | 500.00 | |
Advantages The major advantage of using the pro-rata method is in measuring employee recoverability. If at the end of an job, 10% is written off, all employees will proportionately have 10% written off against their WIP contribution. Whereas, if the practice was billing at the job level and using the FIFO method, the employees who worked on the job last would have the write off allocated against their entries. Disadvantages A disadvantage of using the pro-rata method is where the practice is partially billing a client on a regular basis. The table above illustrates this where two additional WIP entries have been input and a new invoice is raised for $1,125. As the WIP is being carried forward at the time of billing, the pro-rata allocation reduces each WIP entry balance by 75% (that is, $1125/$1500). This results in the previous partially billed WIP entries having a balance and still needing to either be billed or written off (on) in a future period. This will also mean that your Aged WIP report can be left with small amounts left over different aging. About the FIFO method This method is preferred if you are carrying forward WIP transactions. The FIFO (first in first out) method allocates amounts against the WIP entries incurred first, with the earliest entry at the head of the queue. This is illustrated in the table below where the invoice amount of $1,000 is allocated against the oldest entries until all of the $1,000 is allocated, with the remaining WIP entries being carried forward. Date | Employee | Amount | Allocation | WIP Entry Balance |
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30-01-12 | Tom | 100.00 | 100.00 | 0.00 | 02-02-12 | Dick | 200.00 | 200.00 | 0.00 | 03-02-12 | Harry | 300.00 | 300.00 | 0.00 | 04-02-12 | Tom | 400.00 | 400.00 | 0.00 | 05-02-12 | Dick | 500.00 | 0.00 | 500.00 | 05-02-12 | INVOICE 122 | -1,000.00 | | | Bill | 1,000.00 | | Write off | 0.00 | | Closing WIP | 500.00 | |
Advantages The major advantage of this method is that it is very clean and simple to manage your WIP. It will not lead to the situation outlined with the pro-rata method whereby the practice needs to clean out WIP entries with small values. Disadvantages The disadvantage of the FIFO method is that if the practice determines the invoice amount at the job level rather than the employee level, employee recoverability can be impacted. If employee recoverability is important, we would recommend billing at the employee level in which case the FIFO method will manage the WIP entries cleanly and simply while maintaining your reporting requirements. | UI Text Box |
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| If writing off the system will allocate the bill amount in FIFO method but the latest transactions will be used for the write off. |
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