Cost reconciliation records are the evidence and documentation that support your cost reconciliation decisions and actions. They include cost reports, invoices, receipts, timesheets, change orders, progress reports, communication records, negotiation records, agreements, or disputes resolutions. You should document and archive cost reconciliation records in a systematic and secure way, following the project standards and policies.
So, to properly connect cost data together, a thorough analysis must be done on all the key data fields. Prior to reconciling the different cost components, it is necessary to connect those components and join them in one table. In labour cost reconciliation, for example, the reported hours for each employee are fetched from payroll, timesheet and gate logs and placed side by side. Instead of having to look at three different places, combining the information in one table gives the user direct visibility on which records report a higher number of hours in payroll than in timesheets and in gate logs. The fifth step to handle cost reconciliation issues and disputes is to follow up and close out cost reconciliation issues and disputes.
Cost reconciliation in construction projects
However, Morta can be configured with a role/position/company/contract-based security that can either allow or forbid a user from seeing or changing certain parts of a table. Now that we have figured out how many equivalent units of production via each method, let’s apply the costs. Sometimes, a great deal of the raw materials have already been put into a product, but it still needs a chunk of labor to move it to the next department. In this case, we may have a different percentage of completion for the raw materials and the conversion costs. Conversion costs are defined as direct labor plus manufacturing costs needed to finish a product.
The take-away here is that either method will end up with the same costs being moved forward with the completed units to the next process. These costs will be added to additional costs as the product moves through each of the processes until it arrives in the finished goods inventory. 4800 units × $2.09 plus the $658 of costs incurred for the beginning inventory that was transferred out. Remember, in the weighted average method, we add the beginning WIP and the product started and finished in the period, adding the units started, but not completed based on the percentage completed. If you are interested to know more about cost reconciliation and other applications on Morta, please contact me or schedule a demo. The good news is that there are better ways of reconciling expenses in projects and in this post we aim to guide you through it.
Connect your data
With the amount and variety of information involved in typical construction projects, it usually takes days for a whole team to reconcile the costs of a large-scale construction project from those PDF files. This amounts to a lot of extra costs which the owner/contractor has to spend in order to reconcile the costs being spent on the project/s. Construction projects involve millions (and sometimes billions) in spending on expenses that range from people to material and equipment.
- In this situation, it is needed to reconcile the profits or losses shown differently by cost accounts and financial account by preparing a statement called Cost Reconciliation Statement.
- Some examples of cost reconciliation tools are spreadsheets, accounting software, project management software, or specialized cost management software.
- With such a different approach in the two sets of books, it is likely that the profit figures are different.
- The disagreement of profit between financial account and cost account also depends on the difference in the valuation of opening and closing stock.
So from our example above, we have 4925 equivalent units of production using the weighted average method. If our total cost of our beginning WIP inventory was $1,000 and we added $10,000 during the period. The costs per equivalent unit are used to value the units in the ending inventory and the ones that have been moved to the next process. When calculating the equivalent units with the weighted average method and the FIFO method we will end up with a different quantity, using the same data. Databases allow you to store information from any existing systems on your construction project. For the tech geeks here, this can be done either via API or via converters which extract data from CSV/Excel files exported from your systems.
Document and archive cost reconciliation records
Even with the help of Excel, which has a huge range of formulas, one minor error can have a domino effect on thousands of values in cells. On one of our projects, there are more than 10 subcontractors who submit Excel/CSV files containing thousands of labour hours and costs. Every month, the general contractor requires the subcontractor to submit a payment application consisting of a series of invoices, delivery tickets and labour timesheets. The disagreement of profit between financial account and cost account also depends on the difference in the valuation of opening and closing stock.
If overheads are not fully absorbed i.e. the amount in cost account is less than the actual amount, the short fall is called under absorption. On the other hand, if overhead expenses in cost accounts are more than the actual, it is called over absorption. The differences between these two topics occur not only because of the error in the system but also due to the different procedures and principles carried by these accounts. Moreover, the amounts of profit and loss obtained from both accounts are often found to be different. Hence, there comes necessity to reconcile the profit between these two accounts and statements. So, a statement which is prepared for reconciling the profit shown by cost and financial account is known as reconciliation statement.
What is cost/expense reconciliation?
While reconciling costs is a common-place activity, we find that many finance, accounting and commercial teams in construction projects lose precious time every month trying to complete their reconciliation activities. Connecting data however is not always as simple as it may sound since more often than not, two systems might refer to the same employee in two different ways. For example, an employee might be referred to by her internal employee number in the subcontractor’s payroll system but by a badge number in the gate logs. For example, the vendor’s invoicing system might display dates in YYYY-MM-DD format, but the client’s accounting system might display dates in another format.
But in Non-Integral Accounting System, separate books are maintained for costing and financial transactions, which may exhibit different results i.e. profits or losses. In other words, when cost accounts and financial accounts are maintained independently by a concern, the profit or loss shown by the cost accounts may not agree with the profit or loss shown by the financial accounts. In this situation, it is needed to reconcile the profits or losses shown differently by cost accounts and financial account by preparing a statement called Cost Reconciliation Statement. The wide acceptance of the PDF format as a means to transfer cost-related information in the construction industry means that the cost data found in those files can only be reconciled by people.
In practice, this means that rather than having access to the original system, we received updates via Excel/CSV files and updated the tables on Morta accordingly. Due to the nature of this workflow, the owner has requested it to be manual, whereby users manually upload the Excel file into Morta and then it takes care of the rest. Not only does the main accountant get stressed towards the end of the month, but she also pauses or lags behind on most of her other tasks, just to prepare the needed documentation for cost reconciliation. Since she is an avid tech user, she has prepared some Excel spreadsheets that assist her.