Intro Work in progress accounting is the system builders use to match revenue and costs to the stage of each job, not just the cash received. It is the backbone of accurate project profitability, lender reporting, and monthly decision making. Most construction firms rely on a work in progress report, often called a WIP schedule, to compare earned revenue with billings and highlight jobs that are overbilled or underbilled.
What WIP accounting means in construction In construction, WIP represents the value of work performed on jobs that are not yet complete. The report blends job cost data, contract value, and updated cost forecasts to show how much revenue has been earned to date and whether the job is tracking to its expected gross margin. Industry guidance highlights that percent complete should be based on reliable cost data rather than the percent of budget spent alone. Procore and Deltek both note that accurate percent complete and projected cost at completion are central to reliable WIP reporting.
Why builders rely on WIP Builders use WIP accounting to answer practical questions every month:
- Are we making or losing money on each job right now
- Are progress claims aligned with the work completed
- Which projects are consuming cash before they bill
- Are change orders and variations properly captured in forecasts
Core WIP calculations Most WIP schedules use the cost to date method for percent complete:
Percent complete = Costs to date / Estimated total cost at completion
Once percent complete is calculated, earned revenue and gross profit can be derived:
Earned revenue = Contract value x Percent complete Gross profit to date = Earned revenue – Costs to date
Overbilled or underbilled position
- If billings exceed earned revenue, the job is overbilled
- If earned revenue exceeds billings, the job is underbilled
These balances explain why a job can look profitable in the field but strain cash flow in the office.
Key components of a WIP schedule A practical WIP report usually includes:
- Contract value including approved variations
- Estimated total cost at completion
- Costs incurred to date
- Percent complete
- Earned revenue and gross profit to date
- Progress billings to date
- Overbilled or underbilled balance
Simple example
| Item | Amount |
|---|---|
| Contract value | 1,000,000 |
| Estimated total cost | 800,000 |
| Costs to date | 320,000 |
| Percent complete | 40 percent |
| Earned revenue | 400,000 |
| Billings to date | 450,000 |
| Overbilled | 50,000 |
Common WIP pitfalls for builders
- Stale cost forecasts. If estimated costs are not updated monthly, percent complete is wrong and earned revenue is misstated.
- Missing variations. Unapproved or unrecorded change orders distort both contract value and gross margin.
- Incomplete job costing. Late supplier bills or timesheets understate costs to date and inflate profit.
- Retentions and deposits. Retention money and customer deposits can confuse billing analysis if not tracked separately.
- Relying on budget spend. Percent of budget spent is rarely a reliable proxy for actual progress.
WIP gain and fade WIP gain occurs when a job is forecast to finish better than expected. WIP fade is the opposite and is often driven by scope creep, productivity issues, or underestimated costs. Tracking gain and fade trends across months helps builders identify estimating bias and project management issues early.
How often should builders run WIP Most firms run WIP monthly in line with close. Larger builders may also run it mid month for cash planning. The key is a consistent cadence with a clear cut off for costs, a structured PM forecast update, and a finance review of the final report.
WIP and accounting standards Revenue recognition for long term construction projects often follows a percentage of completion approach under ASC 606, IFRS 15, and in Australia AASB 15. While tax and reporting rules vary by jurisdiction, the principle is the same: recognize revenue over time based on progress, supported by reliable estimates and job cost data.
Frequently asked questions from builders What is a WIP report used for It compares earned revenue to billings so you can see overbilled and underbilled positions, plus current profitability.
How do I calculate percent complete The most common method is costs to date divided by estimated total cost at completion. This approach is widely used in construction accounting guidance.
Is WIP the same as cash flow No. WIP measures earned revenue and margin based on progress. Cash flow depends on billing timing, retention, and payment speed.
Who owns WIP accuracy Operations own job forecasts and progress. Finance owns the reporting format and controls. Both sides must align monthly.
What tools help WIP accounting Construction accounting platforms and job cost systems can automate costs, progress billing, and forecasting. The most important input is still accurate field reporting and disciplined monthly updates.
Practical gaps in most WIP guidance
- Limited advice for small builders managing WIP in spreadsheets
- Few clear examples that integrate retentions and deposits
- Not enough guidance on handling unapproved variations in early stage forecasts
- Limited Australian focused notes on AASB 15 and GST timing for progress claims
Conclusion WIP accounting is more than a report. It is the financial health check that keeps builders ahead of cash surprises and margin erosion. The builders who treat WIP as a monthly discipline get cleaner forecasts, better progress claim accuracy, and faster decisions.
Key takeaways
- Use updated cost forecasts to drive percent complete and earned revenue
- Compare billings to earned revenue to spot overbilled and underbilled jobs early
- Treat WIP as a monthly cycle shared by project teams and finance
Sources
- https://www.procore.com/library/percentage-of-completion
- https://www.deltek.com/en/construction/accounting/work-in-progress
- https://www.intuit.com/enterprise/blog/construction/work-in-progress-accounting/