What a construction WIP schedule should tell management.
Use WIP reporting to connect contract values, job costs, completion estimates, billings, change orders, and forecasted margins.
A construction work-in-progress schedule should do more than satisfy a year-end request. Used consistently, it gives management a job-by-job view of contract value, recorded costs, remaining estimates, billings, expected profit, and the assumptions that could change the result.
Accounting can supply recorded costs and billings, while project managers hold important knowledge about field conditions, productivity, change orders, and remaining work. A useful WIP process brings both perspectives together on a regular schedule.
Begin with a controlled contract record
Each active job should have a clearly identified row and reporting date. Depending on the contractor and its reporting needs, the core fields may include:
- Original contract amount, approved change orders, and current contract value.
- Costs incurred to date, latest estimated cost to complete, and estimated total cost.
- Estimated gross profit, margin, and percentage complete.
- Revenue recognized or earned under the company’s applicable reporting method.
- Billings to date, retainage where relevant, and overbilling or underbilling.
- Expected completion date and remaining contract value.
Approved and pending change orders should not be blended. An approved change supported by executed documentation may affect current contract value. A pending change, disputed amount, claim, or unsigned authorization should remain separately identified until its treatment is evaluated under the contract and the company’s accounting policy. Management should see the potential exposure without treating an uncertain amount as established revenue.
The SBA’s Schedule of Work in Process, used in connection with its Surety Bond Guarantee Program, illustrates several fields an outside party may request, including contract price with approved change orders, billings including retainage, costs to date, and estimated cost to complete. A contractor’s internal schedule may need more detail, but those fields provide a useful baseline.
Connect contract value, costs, earnings, and billings
Many management WIP schedules use a cost-to-cost calculation when it is consistent with the company’s applicable reporting method. Under that approach, costs incurred to date are compared with the latest estimated total cost to calculate percentage complete. That percentage may then be applied to current contract value to calculate earned revenue.
- Costs to date plus estimated cost to complete produce estimated total cost.
- Current contract value less estimated total cost produces estimated gross profit.
- Costs to date divided by estimated total cost produces the cost-based completion percentage.
- Earned revenue compared with billings identifies whether the job is billed ahead of or behind calculated progress.
These calculations are not universal rules for every contract or reporting purpose. The applicable financial-reporting framework, accounting policy, contract terms, and facts control the proper treatment. Tax accounting may also differ. IRS Publication 538 explains general tax accounting periods and methods; management should not assume that a tax method and an internal or financial-reporting presentation are interchangeable.
Make changes in estimates visible
A WIP schedule depends heavily on estimates, particularly the cost to complete. Management should be able to see when an estimate changed, why it changed, who revised it, and what happened to expected gross profit.
Questions may include whether remaining subcontractor commitments are current, material-price changes have been incorporated, labor productivity remains realistic, and known rework or schedule pressure has been considered. Showing prior and current estimates can reveal profit fade or gain early enough for management to investigate.
Reconcile WIP to the accounting records
Costs to date should reconcile to the job-cost system and general ledger. Billings, accounts receivable, and retainage should agree with their supporting reports. Contract values should tie to executed contracts and approved modifications.
The reconciliation should also address cutoff. Late vendor invoices, payroll posted to the wrong job, unrecorded subcontractor activity, transfers between jobs, and costs held in suspense can distort both percentage complete and projected margin. Unexplained differences should remain on an open-item list with an owner and resolution date. Incorporating this work into the contractor’s month-end close process is more dependable than reconstructing it at year-end.
Use the schedule as a management dashboard
Management should review more than total underbillings or overbillings. A job may be overbilled because contract terms permit early billing while substantial performance and cash obligations remain. An underbilling may reflect timing, unapproved changes, weak billing discipline, or costs running ahead of recognized progress. Neither balance is automatically favorable or unfavorable.
The schedule should identify jobs with declining margins, stale estimates, delayed billing, large pending changes, unusual retainage, approaching completion dates, or insufficient remaining contract value. Remaining work should also connect sensibly to backlog and forecast information without mixing signed work with unapproved opportunities.
Establish ownership and a repeatable review
A practical process assigns project managers responsibility for operational estimates, accounting responsibility for recorded costs and billings, and senior management responsibility for challenging significant judgments and approving the completed schedule. Monthly review is often appropriate for active contractors, with more frequent attention for large, fast-moving, or higher-risk jobs. Material estimate revisions should be documented rather than silently overwritten.
Prepare for outside requirements without losing the management purpose
Sureties, lenders, and a separate external CPA firm may request WIP information, but each party determines its own requirements and conclusions. A complete schedule does not assure financing, bonding capacity, or any particular external result. If an external financial-statement audit is required, a separate CPA firm performs it and decides its procedures. John W. Halloran CPA, P.C. can help management organize and reconcile accounting records through Audit Readiness; the firm does not perform the external audit.
For established contractors that need a more dependable close, job-cost process, and WIP review, explore our Construction accounting and tax services and Client Accounting Services. To discuss the current reporting process, tell us about your business.
Frequently asked questions
What should be included on a construction WIP schedule?
The fields depend on the contractor and applicable reporting method, but commonly include contract value, approved changes, costs to date, estimated cost to complete, estimated total cost, percentage complete, earned revenue, billings, overbillings or underbillings, estimated gross profit, and expected completion date. Pending or disputed changes should be identified separately.
How often should management review the WIP schedule?
Monthly review is often useful when WIP supports the close and management reporting. Large, rapidly changing, or higher-risk jobs may warrant more frequent review. The important point is to use a repeatable cutoff, require current estimates, and document significant revisions.
Is an overbilling always good and an underbilling always bad?
No. Either balance may result from contract terms, billing timing, project conditions, estimate changes, or accounting issues. Management should examine the cause, available cash, remaining obligations, collectibility, and the work required to complete the job rather than judge the balance by its label alone.
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