What is a statement of work?

Definition

A statement of work is the written description of what an engagement will deliver, when it is due, and what it costs. On the books, this is not a journal and not a ledger account.

A bookkeeping shop writing a monthly-close engagement for a florist uses it so both sides can see the close tasks, the due dates, and the fee. The contract is what binds; this document is what the work looks like.

It does not hit the Income Statement the day it is written. Revenue waits until the described work is earned, and cash waits until invoices on that scope collect.

Stay with the scope document when you read it. The later invoice, the signed amendment, and the job-cost record each belong on other pages.

Where it shows up

P&L: Related to nothing until the work is earned.

Balance Sheet: Related to nothing sitting as an account.

Cash flow: Related to nothing until invoices on that scope collect.

See also: Contract · Change Order · Bookings

When you look at your Income Statement, a statement of work does not print as a line. Revenue shows up only as the described close work is earned, month by month or at the milestones the document sets.

The Balance Sheet does not hold a statement-of-work account. Signing or sending the document does not create a receivable, a deposit, or a liability by itself.

On the Statement of Cash Flows, cash does not move when the scope is written. Cash moves when invoices on that scope are collected.

How it works

A typical path starts before the work begins. The bookkeeping shop and the florist agree what monthly close includes, what it excludes, when deliverables are due, and what the fee is.

That description is written as a statement of work. It may sit as an exhibit under the contract, or it may be the working paper both sides keep beside a shorter agreement.

Stay on that scope. Do not treat a quote, an email thread, or the first invoice as the document that defines the work.

After it is agreed, billing and earned revenue follow what it says. A monthly-close fee billed on the first of the month is billing the scope in that paper, not inventing a new job each time.

If the florist later wants payroll or a weekly cash report, that extra work is outside the original statement of work. A signed amendment is what adds it; a verbal add-on is not.

If the shop invoices for work the document never described, the florist has nothing to match the bill against. Keep invoices pointed at the scope that was written down.

Do not post a journal that says "statement of work." The journal comes later, when the described work is billed or when it is earned.

Payment terms for those later invoices can sit in the same paper, but they are not the scope itself. The statement of work says what will be done; the terms say when the bill is due.

Example

Ledger & Bloom is a bookkeeping shop. A neighborhood florist asks for help with monthly close, and the shop writes a statement of work for that engagement.

The document says the shop will close the books by the tenth of each month, send a two-page packet, and charge $400. Payroll, sales-tax filings, and tax returns are listed as out of scope.

Nothing hits cash, receivables, or revenue when the paper is signed. The $400 is agreed work, not a bill and not earned performance yet.

When March close is done, the shop invoices $400 against that statement of work. Cost for the close hours posts to that florist engagement, not to a general pile of bookkeeping time.

If the florist later asks for weekly cash reports, the original document does not cover them. The shop writes a signed amendment, or a new statement of work, before those reports become part of the fee.

If the shop had only emailed "we can handle close for about $400," there would be no agreed list of deliverables. The first invoice would then be arguing about scope instead of billing work already described.

Common mix-ups

A statement of work is not the contract. The contract is the binding agreement; this page is the document that describes the scope, deliverables, and price inside that engagement.

A statement of work is not a quote. A quote is a priced proposal before anyone has agreed; this page is the agreed description of the work.

A statement of work is not an invoice. The document says what may be billed; the invoice is the later paper that actually bills a period or a milestone.

Related terms

• Contract: The binding agreement that sets what will be delivered and what will be paid.
• Change Order: A signed amendment adding or altering scope and price on a job.
• Quote: A priced proposal issued to a customer before an order is placed.
• Bookings: The contract value signed in a period, whether or not it has been billed.
• Progress Billing: Invoicing a customer in stages as work is completed.
• Payment Terms: The agreed deadline and conditions for paying an invoice.
• Backlog: Signed work that has not yet been delivered or recognized as revenue.
• Invoice: The document that bills a customer and creates a receivable.
• Job Costing: Tracking revenue and cost for each individual job, project, or order.