The normal practice is to accrue unpaid labour at the end of the month based on accrual accounting to capture the period costs. This practice is fine for indirect labour, but with direct labour it begs a question whether it is required. My client records direct labour to the job based on finalised payroll. The accrued and unpaid labour at the end of month is not allocated to the jobs until the payroll is finalised for the week. Since it is not allocated to the job it is not a part of the wip calculation. Doesn't this result in a revenue cost mismatch especially for the direct labour which is accrued as it has hit the G/L as an expense but not accounted in WIP.
If it was to be recorded as WIP, is there any point in accruing direct labour?
Thank you all