Ray runs a commercial framing company with about twenty people. Business is good, so he goes to his bank about a bigger line of credit. The loan officer is friendly, flips through his financials, and asks one question: "Can you send over your WIP schedule?"
Ray says yes. Then he goes home and searches "what is a WIP schedule." (Ray is hypothetical. The search is extremely real.)
A WIP schedule, short for work in progress schedule, is one of the most useful reports a contractor can have, and one of the least loved. This article explains what it shows, how to build one, and what over-billing and under-billing really mean.
What a WIP schedule actually shows
A WIP schedule is a snapshot of every job that's started but not finished, as of a specific date (usually month end). For each job, it lists:
- Contract price, including approved change orders
- Estimated total cost to finish the job
- Costs incurred to date
- Percentage complete
- Revenue earned to date
- Amount billed to date
- Over-billing or under-billing
The point is to answer a question your P&L can't on its own: based on the work actually done, have you earned more or less than you've billed?
How percentage of completion works
Most contractors use a cost-to-cost approach to percentage of completion. The idea is simple: if you've spent 60% of the costs you expect the job to take, the job is about 60% done.
Percentage complete = costs to date / estimated total costs
Earned revenue = percentage complete × contract price
That's why the estimated total cost matters so much. If your estimate is stale, everything downstream is wrong. A WIP schedule is only as good as the cost-to-complete estimates behind it, and those come from your project managers, not the bookkeeper.
The costs themselves come from job costing. If costs aren't tagged to jobs reliably, start with job costing for contractors, then come back here.
A worked example with three jobs
Here's a hypothetical WIP schedule at June 30:
| Job A | Job B | Job C | |
|---|---|---|---|
| Contract price | $400,000 | $250,000 | $120,000 |
| Estimated total cost | $320,000 | $200,000 | $96,000 |
| Costs to date | $160,000 | $150,000 | $24,000 |
| Percent complete | 50% | 75% | 25% |
| Earned revenue | $200,000 | $187,500 | $30,000 |
| Billed to date | $240,000 | $150,000 | $30,000 |
| Over (under) billed | $40,000 over | $37,500 under | $0 |
Job A has been billed $40,000 ahead of the work. Job B has $37,500 of work done that hasn't been invoiced yet. Job C is right on track.
What over-billing means
Over-billing means you've billed more than you've earned based on progress. On the balance sheet, it's a liability, often called "billings in excess of costs and estimated earnings." (Newer accounting standards use the term contract liability. Same idea, shorter name.)
Some over-billing is normal and even healthy. Front-loading billing on a job helps cash flow, and a modest over-billing position can mean you're managing billing well.
The risk is treating that cash as profit. The $40,000 on Job A is money for work you still have to do. If you spend it on a new truck, you'll be paying for the back half of Job A out of other jobs' money, a bit like borrowing from next month's grocery budget to pay this month's.
What under-billing means
Under-billing means you've done more work than you've billed. It's an asset on the balance sheet, often called "costs and estimated earnings in excess of billings" (or a contract asset).
Under-billing deserves a closer look. Sometimes it's harmless timing: a pay application goes out next week. Other times it's a warning:
- The estimate is too low, so costs are running ahead and the job is less complete than the math says.
- Change orders were performed but not yet approved or billed.
- Billing is simply behind, and cash is suffering for it.
Lenders and sureties tend to look hard at large or growing under-billings, because they can signal that profit on a job is being overstated. That's one of the first things they notice, along with the other items in our piece on messy books and a loan application.
How to build a WIP schedule each month
Here's a practical monthly routine:
- Close the month's job costs first: bills, payroll, subs and equipment all tagged to jobs.
- Get updated estimated costs to complete from each project manager.
- Update contract prices for approved change orders only.
- Calculate percent complete, earned revenue and over or under billing for each job.
- Record an adjusting entry so the balance sheet shows the over-billing liability and under-billing asset.
- Review any job where projected margin dropped more than a few points since last month.
Step five is what connects the WIP schedule to your financial statements. It relies on accrual accounting (recording revenue when it's earned, not when cash moves). If your books are on a cash basis, the over and under billing won't show up at all. Our comparison of accrual vs cash accounting explains the difference. Which revenue method you use for tax purposes is a separate question for your CPA.
Questions owners ask
Is over-billing bad in construction?
Not by itself. Modest over-billing often means billing is ahead of costs, which helps cash flow. It becomes a problem when the cash is spent as if it were profit, leaving too little to finish the job.
What is the difference between a WIP schedule and job costing?
Job costing tracks actual costs by job. A WIP schedule uses those costs, plus estimated costs to complete, contract prices and billings, to calculate earned revenue and over or under billing on every open job.
How often should a contractor prepare a WIP schedule?
Monthly is ideal, alongside the month-end close. At minimum, prepare one at each quarter end and year end, and whenever a lender or surety asks.
Want a WIP schedule your lender will trust?
Our contractor accounting service handles job costing, monthly close and WIP schedules, with a controller reviewing the numbers before they leave the building. Request a consultation and we'll look at where your jobs stand today.