Committed, Incurred & Actual Cost

January 2014
What is ‘Committed Cost’?

I have seen ‘Committed Cost’ defined as an investment that a business entity has already made and cannot
recover by any means, as well as obligations already made that the business cannot get out of.

In a construction dictionary, I found committed costs described as “a cost which has not yet been paid, but
an agreement, such as a purchase order or contract, has been made that the cost will be incurred”.
Simply, a committed cost may be regarded as a cost which the construction entity has committed to incur.

Committed Costs and Actual Costs on Construction Projects

In construction projects, the generally accepted definition of Committed Cost is the commitment arising
from purchase orders and subcontracts.

Actual cost is generally defined as the cost resulting from invoices received from suppliers and
subcontractors, and actual cost is generally recognised when the invoice is received rather than when the
invoice is paid.

There is also a group of other costs – journals, payroll, etc., that have no pre-commitment – they just appear
as actual cost. Of course, these must be considered as committed costs also. (We must have been
committed if we have paid it!)
The actual cost should not be less than the committed cost (If we have recognised an invoice, or another
form of cost, then we must have accepted the commitment).

Committed costs, actual costs, and any other project cost will never include GST.

Subcontract retention is also excluded. The incurred cost and actual cost is the full payment value before
retention is deducted (we have the actual cost, even if we have not paid the full amount).

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 Cheops Committed-incurred-Actual Cost

What about Incurred Costs?

Incurred cost is an interesting term. It is used in Cheops to describe that step where the goods have been
received, or the work has been done, and the actual cost is not yet recognised as the invoice has not been
received.
Accounts would most likely refer to this as an ‘accrued’ cost but Cheops uses the term ‘incurred’, and
Cheops generates the incurred value from delivery dockets (materials) and not-finalised subcontractor
progress payments. Cheops also allows for the entry of manual accruals, so the system provides some
alternative methods.

Summary

Below is a simple summary of which costs are included under each heading. Note that this summary is
simplified, and the detailed explanation is included in the tables on the following pages.

Committed Cost Incurred Cost Actual Cost

• Purchase Orders • ‘Incurred’ orders • Invoices

• Subcontracts • Delivery Dockets • Subcontract progress
• Subcontract variations • Subcontract progress payments ‘Approved’
• Sundry debtor invoices payments ‘Not • Credit notes
entered as credits. Finalised’.
• Other costs with no • Other costs including
‘pre-commitment’ journals, general
(journals, general cheques, timesheets, etc.
cheques, timesheets,
etc.)

Note that once a committed cost becomes an actual cost, it then reports as both committed and
actual and therefore at Job completion Committed should equal Actual.

Whereas, an Incurred Cost is automatically removed from incurred once it becomes an actual and
therefore the total incurred cost at Job completion should be zero.

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Committed, Incurred, and Actual Costs

Transaction Committed Cost Incurred Cost Actual Cost

Job Cost
1. Project Cost Opening Balance The journal value allocated to each cost Not updated. The journal value allocated to each cost
Journals reference. reference.

2. Supplier Purchase Order The order value allocated to each cost Not updated. Not updated.
Type = ‘Committed’ reference on the order.

3. Supplier Purchase Order The order value allocated to each cost The order value allocated to each cost Not updated.
Type = ‘Incurred’ reference on the order. reference on the order.

Note that for orders ‘ticked’ as incurred, When the invoice(s) are entered, the
the committed cost still applies. incurred cost is reduced by the invoice
value allocated to each cost reference
(it becomes an actual cost).

If the order is closed (final invoice),

the incurred cost becomes zero.

4. Supplier Delivery Docket Not updated. For orders not ‘ticked’ as incurred, the Not updated.
(Committed value comes from the order) delivery docket value allocated to
each cost reference on the order.
If the value of delivery dockets exceeds
the order value, the committed cost is When the invoice is entered for the
increased to match the value of the delivery docket(s) the incurred cost is
dockets for each cost reference. reduced by the invoice value allocated
to each cost reference (it becomes an
actual cost).

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 Cheops Committed-incurred-Actual Cost
Transaction Committed Cost Incurred Cost Actual Cost
Note that an incurred value may still
remain, if some dockets have not yet
had invoices entered.

Creditors
5. Supplier Invoice – Generally Not updated (Committed cost Not updated. The invoice value allocated to each cost
Linked to an order comes from the order). reference on the invoice.

However, if the invoice exceeds the order

(if allowed by a system parameter) then,
for each cost reference, the committed
cost is updated by the excess of the
invoice value over the order value.

6. Supplier Invoice – The invoice value allocated to each cost Not updated. The invoice value allocated to each cost
Entered as ‘Invoice Only’ reference on the invoice. reference on the invoice.
The system creates an order (as a
duplicate of the invoice) to track the
committed cost. The committed cost
matches the actual cost.

7. Supplier Credit Note The committed amount created by the Not updated. The actual cost for each cost reference is
- Linked to an invoice order (or invoice only) will be reduced by reduced by the credit value allocated to
the amount of the credit, allocated to each cost reference on the credit.
each cost reference on the order (or
invoice only). If the full invoice value is credited, then
the actual cost is zero
If the full invoice value is credited,
then the committed cost is zero

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 Cheops Committed-incurred-Actual Cost
Transaction Committed Cost Incurred Cost Actual Cost
8. Supplier Credit Note The committed cost is reduced by the Not updated. The actual cost for each cost reference is
- Not Linked to an invoice amount of the credit, allocated to each reduced by the credit value allocated to
cost reference on the credit. each cost reference on the credit.

A credit not linked to an invoice will show

as a separate line item in the transactions
listing.

9. Cash Receipt Supplier’s cash receipts are treated as a Not updated. The actual cost is reduced by the cash
credit to cost. The committed cost is receipt amount for each cost reference
reduced by the cash receipt amount for on the cash receipt.
each cost reference on the cash receipt.

10. Subcontract The subcontract let value allocated to Not updated. Not updated.
- Lump-Sum or Rates each cost reference on the subcontract.
Applies equally to lump-sum subcontracts
and to rates subcontracts.

11. Subcontract Variations The committed cost is updated by the Not updated Not updated
subcontract variation at ‘approved’,
‘submitted’, or ‘estimated’ status; as set
by your system parameters.

12. Head Contract Variations Not updated Not updated Not updated

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 Cheops Committed-incurred-Actual Cost
Transaction Committed Cost Incurred Cost Actual Cost
13. Subcontract Progress Payment Not updated. Where a subcontractor progress Not updated.
– Lump-Sum Contract payment has been saved as ‘not
Not Finalised finalised’, the incurred cost is updated
by the progress payment incremental
amount for each cost reference on the
payment.

If the incurred cost includes a

payment (part or full) of an
unapproved subcontract variation,
then the cost to date cost may exceed
the committed cost.

14. Subcontract Progress Payment Generally not updated- Not updated. The progress payment value for each
- Lump-Sum Contract However, if the approved cumulative cost reference on the payment.
Approved. total payment exceeds the current
adjusted contract sum (if allowed by a
system parameter) then, for each cost
reference, the committed cost will be
increased by the amount by which the
cumulative total progress payment
exceeds the current adjusted contract
sum.

15. Subcontract Progress Payment Not updated. The incurred cost is updated by the Not updated.
– Rates Subcontract progress payment incremental
Not finalised amount for each cost reference on the
payment including subcontract
variations.

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 Cheops Committed-incurred-Actual Cost
Transaction Committed Cost Incurred Cost Actual Cost
16. Subcontract Progress Payment Generally not updated. Generally not updated. The progress payment value for each
– Rates Subcontract cost reference on the payment.
Approved See note 17 below. If the payment had been previously
saved as ‘Not finalised’ (and incurred
cost updated as per item 15 above),
then when the payment is approved,
the incurred cost is no longer applied
(it becomes an actual cost).

17. Subcontract Progress Payment The committed cost is updated by any Generally not updated. The progress payment value for each
– Rates Subcontract amount paid on an unapproved cost reference on the payment for the
subcontract variation (only on a rates Refer to comments above re variation.
- payment of unapproved subcontract) ‘not finalised’ payments.
subcontract variation
Note that the committed cost is not
increased by the actual variation value,
but by the extent to which the
unapproved subcontract variation is paid.
See note 1 below.

18. Subcontract Progress Payment The committed cost is NOT updated by Generally not updated. The progress payment value for each
– Lumpsum Subcontract any amount paid on an unapproved cost reference on the payment for the
subcontract variation (different from the Refer to comments above re variation.
- payment of unapproved treatment of a rates subcontract) ‘not finalised’
subcontract variation
Note that if a system parameter is set to
allow a subcontract payment on a lump
sum contract to exceed the current
adjusted contract sum, then the actual
cost may be greater than the committed
cost – by reason of the payment against
an unapproved subcontract variation.

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 Cheops Committed-incurred-Actual Cost
Transaction Committed Cost Incurred Cost Actual Cost
19. Subcontract Retention Not updated. Not updated Not updated.

20. Subcontract Cancelled Retention Not updated. Not updated. Not updated.

21. Suppliers Cheques Not updated. Not updated. Not updated.

22. Subcontractor Cheques Not updated. Not updated. Not updated.

23. General Cheques The general cheque value allocated to Not updated. The general cheque value allocated to
each cost reference on the cheque. each cost reference on the cheque.
The committed cost matches the actual
cost.

24. WHT Cheques Not updated. Not updated. Not updated.

25. Cancelled Cheques Generally not updated. Not updated. Generally not updated.

If the cancellation is for a General If the cancellation is for a General

Cheque, then the committed cost Cheque, then the actual cost resulting
resulting from the cheque, is reversed. from the cheque, is reversed.

26. GST Cheques/Receipts Not updated. Not updated. Not updated.

27. Project Cost Journals The journal value for each cost reference. Not updated. The journal value for each cost
reference.

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 Cheops Committed-incurred-Actual Cost
Transaction Committed Cost Incurred Cost Actual Cost

28. Plant/Time Sheets The costed value of the plant/time sheet Not updated. The costed value of the plant/time sheet
allocated to each cost reference on the allocated to each cost reference on the
plant/time sheet. plant/time sheet.
(Matches the actual cost)

Debtors
29. Progress Claim Not updated. Not updated. Not updated.

30. Difference (Claim-Cert) Not updated. Not updated. Not updated.

31. Sundry Debtor Invoice (1) Where the invoice is allocated to Not updated. (1) Where the invoice is allocated to
revenue – not updated. revenue – not updated.

(2) Where the invoice is allocated as (2) Where the invoice is allocated as
credit to a cost reference, the credit to a cost reference, the actual
committed cost is reduced by the cost is reduced by the value of the
value of the invoice line item for each invoice line item for each cost
cost reference on the credit. reference on the credit.

32. Progress Claim Credits, Not updated. Not updated. Not updated.
Applied to
• A Progress Claim,
• Stand alone, or
• Sundry Invoice allocated to
revenue.

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 Cheops Committed-incurred-Actual Cost
Transaction Committed Cost Incurred Cost Actual Cost
33. Progress Claim Credits, Where the credit is linked to a Sundry Not updated. Where the credit is linked to a Sundry
Applied to Sundry Invoice allocated invoice which was allocated as credit to a invoice which was allocated as credit to a
as a credit to cost. cost reference, the committed cost is cost reference, the actual cost is
increased by the value of the credit line increased by the value of the credit line
item for each cost reference. item for each cost reference.

34. Progress Payment Receipt Not updated. Not updated. Not updated.

35. Progress Payment (WHT) Not updated. Not updated. Not updated.

36. Progress Payment Retention Not updated. Not updated Not updated.

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Reports – Where do we see these costs?
Cheops provides many reports which include committed and actual costs, and several reports that show
incurred costs.

Project Cost Reports

Report Title Short Code Report Content
Project Transactions by Cost Reference ALLCOST Shows Budget, Actual, Incurred and Cost to Date,
but not Committed Cost
Commitments by Cost Reference – Period COSTPERC Shows only committed cost.
OM
Transactions by Cost Reference COSTPER Shows Budget, Committed, Actual and Forecast.
This is one of the most useful reports.

Transactions by Resource Category COSTRC Shows Actual cost only.

Job Cost Transactions by Resource Category COSTRCI Shows Actual cost only.

Actual Cost by Cost Reference (Date) ACTCOST Shows Actual cost only.

Actual Cost by Cost Reference (Period) PERCOST Shows Actual cost only.

Details Costs by Cost Summary DETCOST Shows Actual cost only.

All Cost Summary – Resource Category Shows Budget, Actual, Incurred and Cost to Date

All Cost Summary – Resource Item Shows Budget and Cost to Date

Incurred Cost by Cost Reference (Period)

Project Information Report PROINF The Project Information report has an option to
include the ‘Incurred’ costs, but there is currently
no drill-down available to show the detail
transactions which are included in the total.

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