WIP and Percentage-of-Completion Accounting for Contractors, Explained
- Work-in-progress, or WIP, is the set of jobs you have started but not finished, and a WIP schedule reconciles each job's costs and billings against its estimated total.
- Percentage-of-completion recognizes a job's revenue as the work progresses, instead of waiting until the job is finished.
- Overbilling means you have billed more than you have earned, which is a liability. Underbilling means you have earned more than you have billed, which is an asset. Both are warning lights.
- Whether you report on a percentage-of-completion basis for taxes is governed by rules and thresholds and is a decision for your CPA. The bookkeeping job is to keep job costs clean enough that a WIP schedule is even possible.
What Work-in-Progress Means for a Contractor
Work-in-progress, almost always shortened to WIP, simply means the jobs you have started but not yet completed. Because construction jobs span weeks or months, at any given moment you have money tied up in projects that are partly done, and a snapshot of your bank balance tells you very little about whether those jobs are healthy.
A WIP schedule is the report that fixes that. For each open job it lines up the contract value, the costs you have incurred so far, your estimated total cost to complete, the resulting percent complete, the revenue you have earned based on that progress, and the amount you have actually billed. Put side by side, those numbers tell you whether each job is ahead, behind, or roughly on track.
For small contractors a WIP schedule can feel like big-company overhead, but it answers a question that catches a lot of shops off guard: am I actually making money on this job as it runs, or am I just collecting deposits that will run out before the work does?
Percentage-of-Completion vs Completed-Contract
There are two broad ways to recognize revenue on a long job. Completed-contract waits until the job is finished and recognizes all of the revenue and cost at the end. Percentage-of-completion recognizes revenue gradually, as the job progresses, so each period reflects the portion of the work that was actually done.
Completed-contract is simpler, but it makes your financial statements lumpy: a month with three jobs finishing looks enormous, and the months of work that led up to it look empty. Percentage-of-completion smooths that out and shows earned profit closer to when the work happened, which is why lenders, bonding companies, and larger owners often expect to see it.
Which method you use for tax reporting is not a free choice. It is governed by tax rules and contract-size and revenue thresholds, and the right answer for your business is a decision for your CPA or tax preparer, not something to pick based on a blog. What bookkeeping controls is the quality of the underlying numbers, so that whichever method applies, the costs and billings feeding it are accurate.
How Percent Complete and Earned Revenue Are Calculated
The most common way to measure progress is the cost-to-cost method. You take the costs incurred on the job so far and divide by the total estimated cost of the job. That percentage is your percent complete, and multiplying it by the contract value gives you the revenue you have earned to date.
Here is an illustrative example with round numbers. Say a job is contracted at 200,000 dollars and you estimate it will cost you 150,000 to complete. If you have incurred 75,000 in costs so far, you are 50 percent complete on a cost basis, so you have earned roughly 100,000 of the contract value, even if your billing schedule has you invoicing a different amount this month.
That gap between what you have earned and what you have billed is the whole point of the exercise. The math is only as good as your estimate of total cost and the accuracy of the costs tagged to that job, which is why job costing has to be clean for any of this to mean anything. A bad cost estimate or miscoded costs make the percent complete, and therefore the earned revenue, wrong.
Overbilling and Underbilling: The Two Warning Lights
Once you can compare earned revenue to billed revenue on a job, two conditions jump out, and both matter.
Overbilling means you have billed the customer more than you have earned based on progress. It is common and often deliberate, since billing ahead helps fund the job, but it is effectively borrowing against work you have not done yet. On the books it is a liability, and a job that is heavily overbilled can leave you short of cash at the end when the billing is used up but the costs keep coming.
Underbilling is the reverse: you have done more work than you have invoiced. That earned-but-unbilled work is an asset, but it is also money sitting on the table. Underbilling usually means billing is lagging behind the field, which starves the job of cash and can hide the fact that you are financing the customer with your own money. Seeing both conditions across your open jobs is what keeps you from being surprised at closeout.
Why Cash-Basis Books Hide All of This
Most small contractors keep their day-to-day books on a cash basis, where revenue shows up when a deposit lands and costs show up when a bill is paid. That is fine for simple tracking, but it tells you almost nothing about whether a specific in-progress job is earning its keep.
On cash-basis books, a big deposit makes a month look great even if the work behind it has not been done, and a heavy material-buy month looks like a loss even though the revenue is coming. Profit looks lumpy and random because it is following your bank account, not your jobs. Without a WIP view, a job can drift well over budget and you will not see it until the money runs out.
You do not have to convert your whole accounting to a percentage-of-completion basis to get value from this. Even keeping a simple WIP schedule alongside cash-basis books gives you the early-warning signal: this job is underbilled and starving for cash, that job is overbilled and will be tight at the end, this other one is running over its cost estimate.
How a Trade Bookkeeper Supports WIP
A WIP schedule is only as trustworthy as the job costs underneath it, and that is squarely a bookkeeping job. If costs are miscoded, jobs are untagged, or the books are weeks behind, no WIP report built on top of them can be right.
Working inside your QuickBooks Online file, we keep job costs clean, current, and tagged to the right project, separate direct costs from overhead, and reconcile your accounts every month, which is what makes a meaningful WIP view possible in the first place. For contractors who need a formal WIP schedule for a bank or a bonding company, that report is often prepared by your CPA or surety accountant, and we provide the clean, reconciled job-cost data they build it from.
If you are starting to take on jobs long enough that deposits and bank balance no longer tell you whether you are making money, that is the signal you have outgrown cash-basis intuition. Head to the get-started page and tell us about your jobs, and we will get the job-costing foundation in place that WIP depends on.
FAQ
What is a WIP report in construction?
A work-in-progress report, or WIP schedule, lists your open jobs and, for each one, compares the contract value, costs incurred to date, estimated total cost, percent complete, revenue earned based on that progress, and the amount billed so far. It tells you whether each job is overbilled or underbilled and whether it is tracking to its cost estimate, which a bank balance or a simple cash-basis P&L cannot show you.
Percentage-of-completion or completed-contract, which should I use?
That is a tax and reporting decision for your CPA or tax preparer, because the method allowed for tax purposes is governed by rules and by contract-size and revenue thresholds, not by preference. In plain terms, completed-contract recognizes everything when a job finishes and makes statements lumpy, while percentage-of-completion recognizes revenue as the work progresses and is what most lenders and bonding companies expect. Bookkeeping keeps the job costs accurate so that whichever method applies is built on solid numbers.
What does overbilling mean for a contractor?
Overbilling means you have invoiced a customer for more than you have earned based on the job's progress. It is common and often intentional, since billing ahead helps fund the work, but it is effectively borrowing against work not yet done and shows up as a liability on the books. A heavily overbilled job can run short of cash near completion, when the billing is exhausted but costs are still coming in, which is why tracking it on a WIP schedule matters.
Do you prepare WIP schedules?
We keep the books that a WIP schedule depends on: clean, current job costing inside your QuickBooks Online file, with costs tagged to the right job and accounts reconciled every month. For contractors who need a formal WIP schedule for a lender or a bonding company, that report is frequently prepared by your CPA or surety accountant, and we supply the accurate, reconciled job-cost data they build it from. Head to the get-started page to get the job-costing foundation in place.
Want this handled for you?
Trade-native categories, job costing, and an expert-reviewed close every month. You keep your QuickBooks file.