How to Fix WIP (Work in Progress) Costing Issues in Dynamics 365
There are not many problems more stressful than a Work in Process (WIP) account that just will not settle. The D365 Work in Process account should work as a holding tank in Dynamics 365 Finance & Operations. WIP holds your cost of materials, labour, and overheads until the production order completion and flushes these costs into your finished goods account. When you have WIP accounts that never settle, go negative, or run amuck, then it affects your entire balance sheet and bottom line. When WIP is your nemesis, follow along here on how to fix the most common Work in Process accounting issues in D365. 1. Make sure WIP is enabled This sounds easy but encounters frequently. When you have costs posting to your P&L straight away instead of posting to the WIP account, it’s time to review the parameters. Go to Production control > Setup > Production control parameters, then go to the WIP tab and make sure WIP is enabled. You will also need to enter valid accounts for materials, labour and overhead. If the fields are empty, D365 will simply not be able to post the costs to WIP. 2. Review your Ledger Posting Profiles If WIP is enable but costs are posting to the wrong accounts. Then you probably forgot about your Posting Profiles. Go to General ledger > Posting setup > Posting and select your Production profile. Open the Production tab and make sure you have the WIP accounts for Resource (Labour/Machine), Materials and Overhead filled in properly. A simple mistake in those GL accounts will post the costs to a different financial period. 3. Strict Enforcement of Reporting on the Shop Floor (The Operational Fix) WIP is calculating on the basis of reported amount rather than the actual amount available on the shop floor. As a result, the WIP always lower than expected if your WIP understates due to unreported costs. Material Missing: Is there is any issue of material by the shop floor but has no entry in the Pick list Journal in the warehouse? Labour Missing: Are the operators working for 10 hours but reporting only 8 hours of work in the Route Card Journal? Without posting these entries, D365 cannot transfer the cost from the accounting period to the WIP account. 4. Production Orders Status Must be “Ended” Production orders may be “Reported as Finished” (RAF) but remain open. An order that is not closed keeps WIP in your balance sheet. To move WIP to your inventory, it is necessary to change the status of the order to “ended.” Perform regular checks of the production orders in the RAF status and end them. 5. Resolve Divergent WIP Valuation Approaches D365 calculates the WIP accounting valuation in a particular way that depends on your inventory valuation approach. In case you have the Standard Cost approach, then WIP valuation is made on standard cost and variances flow to the P&L. In case you apply Actual Cost (FIFO / Weighted Average), WIP valuation will compute depending on the chosen estimating approach (e.g., On-hand, WIP at reporting percentage). You need to make sure that your estimation approach in the Production Control Parameters corresponds to your financial approach. In case you are using “WIP at reporting percentage” but can’t report the accurate completion percentage, then WIP accounting will distort completely. The Bottom Line WIP troubleshooting in D365 is an approach that implies elimination. Start from the system-related aspects (parameters, posting profiles), proceed to the transactional aspects (journals), and end up with the procedural ones (ending orders, shop floor control). In case your WIP accounts are still holding hostage thousands of dollars of unfinished costs, you don’t need to solve it on your own. Our experts in the D365 manufacturing financial area will audit your WIP configuration.
