Construction WIP Schedules and Percentage of Completion: How Contractors Track Real Profit

Most contractors don’t find out a job lost money until it’s over. By then it’s too late to do anything about it. The fix is a tool most successful construction companies live by but many smaller contractors never build: the work-in-progress (WIP) schedule. Done right, it tells you — while the job is still running — whether you’re actually making money, whether you’ve billed enough to cover your costs, and whether your financials will hold up when your bank or bonding company asks for them.

Quick answer: A construction WIP schedule uses the percentage-of-completion method to recognize revenue as a job progresses, based on how much of the estimated cost you’ve incurred so far. It compares what you’ve earned against what you’ve billed to reveal overbillings and underbillings — and gives you (and your surety and banker) a real-time read on each job’s profitability instead of waiting until closeout.

What Is Percentage of Completion?

The percentage-of-completion method recognizes revenue on a long-term contract gradually, as the work gets done, rather than all at once when the job finishes. The most common way to measure “how done” a job is uses cost — the cost-to-cost method:

Percent complete = costs incurred to date ÷ total estimated job costs

If you’ve spent $300,000 on a job you estimate will cost $1,000,000 total, you’re 30% complete — so you recognize 30% of the contract’s revenue as earned, whether or not you’ve billed it yet. This is the engine behind the WIP schedule, and under today’s accounting standards (ASC 606) it’s the standard “over time” method for most construction contracts.

How to Read a WIP Schedule

A WIP schedule is one row per active job, with a handful of columns that build on each other:

1. Contract value — the total you’ll be paid, including approved change orders.
2. Estimated total cost — your best current estimate of what the job will cost to complete.
3. Estimated gross profit — contract value minus estimated cost.
4. Costs incurred to date — what you’ve actually spent so far.
5. Percent complete — costs to date ÷ estimated total cost.
6. Earned revenue — contract value × percent complete.
7. Billings to date — what you’ve actually invoiced the owner.
8. Over / underbilling — the difference between what you’ve billed and what you’ve earned.

That last column is where the story lives.

Overbilling vs. Underbilling: The Number That Matters Most

Comparing billings to date against earned revenue tells you one of two things:

• Overbilled (billings > earned revenue): you’ve invoiced more than you’ve completed. On the balance sheet this is a liability — “billings in excess of costs.” A little overbilling is healthy; it funds the job with the owner’s money instead of yours. Too much can mean you’ve front-loaded billings and the back half of the job will drain cash.
• Underbilled (earned revenue > billings): you’ve done more work than you’ve billed for. This is an asset — “costs in excess of billings” — but it’s really a warning: you’re financing the job out of your own pocket, and unbilled work is the easiest money to lose. Underbilling is one of the most common quiet cash-flow killers in construction.

Watching this column across all your jobs, every month, is how you catch a problem while you can still bill for it or re-forecast the cost.

Why Your Bank and Bonding Company Want a WIP

Here’s the part that turns the WIP schedule from “nice to have” into “non-negotiable”: sureties and banks require it. When you apply for a bond or a line of credit, the surety underwriter reads your WIP schedule before almost anything else. It tells them whether your reported profit is real, how much work you have left to complete (your “backlog”), and whether you’re overbilled in a way that could leave you short to finish jobs.

Contractors with clean, accurate, CPA-prepared WIP schedules get more bonding capacity and better credit terms. Contractors whose WIPs are sloppy, late, or swing wildly from period to period get their capacity cut — regardless of how profitable they actually are. The schedule is how the outside world judges your financial credibility.

Job Costing Is the Foundation

A WIP schedule is only as good as the job costing underneath it. If your costs aren’t tracked accurately by job — labor, materials, subs, equipment, and overhead allocated to the right project — then your “percent complete” is wrong, your earned revenue is wrong, and the whole schedule lies to you. Getting job costing right is the real work; the WIP schedule is the report that sits on top of it. This is also where accurate labor burden and prevailing-wage costs matter — mis-costed labor throws off every job’s percent complete.

A Quick Example

A contractor has a $1,000,000 contract with $800,000 estimated costs (so $200,000 estimated profit). To date they’ve spent $400,000 — that’s 50% complete, so $500,000 of revenue is earned. But they’ve only billed $420,000. They’re underbilled by $80,000 — meaning they’ve done $80,000 of work they haven’t invoiced and are financing out of their own cash. Catch that on this month’s WIP and you send a bill. Catch it at closeout and you may never collect it.

Common WIP and Job-Costing Mistakes

1. Never updating the estimated total cost. If costs are running over, an outdated estimate makes percent complete — and profit — look better than reality.
2. Leaving change orders out. Approved changes belong in contract value and cost; unapproved ones need careful handling.
3. Sloppy job costing. Costs coded to the wrong job break every downstream number.
4. Ignoring underbilling. Treating “costs in excess of billings” as normal instead of a signal to invoice.
5. Only building a WIP at year-end. A once-a-year WIP tells you what went wrong; a monthly WIP lets you fix it.

Frequently Asked Questions

What is a WIP schedule in construction?

A work-in-progress schedule is a report listing each active job with its contract value, estimated costs, percent complete, earned revenue, and billings — so you can see each project’s true profitability and whether it’s over- or underbilled while the work is still in progress.

How is percentage of completion calculated?

Most contractors use the cost-to-cost method: percent complete equals costs incurred to date divided by total estimated job costs. Earned revenue is then the contract value multiplied by that percentage.

What is the difference between overbilling and underbilling?

Overbilling means you’ve invoiced more than you’ve earned (a liability, “billings in excess of costs”). Underbilling means you’ve earned more than you’ve invoiced (an asset, “costs in excess of billings”) and are financing the job yourself. The WIP schedule shows both.

Why do bonding companies want a WIP schedule?

A surety uses your WIP to verify that reported profit is real, gauge your remaining backlog, and check whether overbilling could leave you short to finish jobs. Clean, accurate WIP schedules generally support more bonding capacity.

How often should I update my WIP schedule?

Monthly is the standard for a reason — it lets you catch cost overruns and underbilling in time to act. A WIP prepared only at year-end can explain a bad result but can’t prevent one.

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Want a WIP Schedule Your Surety Will Trust?

An accurate WIP schedule — built on solid job costing — is one of the highest-leverage financial tools a contractor can have, for both profitability and bonding. Precision Accounting & Consulting works with New York contractors on job costing, WIP reporting, percentage-of-completion accounting, and surety-ready financial statements. If you’d like your job costing and WIP reviewed, talk with a construction accounting specialist.

See the reports: Our Construction Reporting Package shows sample job costing, WIP, labor efficiency and burden reports we build for contractor clients.

Disclaimer: This article provides general information only and is not accounting, tax, or legal advice. Revenue-recognition and tax rules for construction contracts are complex and depend on your contracts and company size — consult a qualified professional about your specific situation.

Reading the schedule against the billing position. A WIP schedule is only half the picture. The percentage-of-completion calculation tells you how much revenue is earned; comparing that to what has actually been invoiced tells you whether the job is overbilled or underbilled, and that is the number sureties and lenders read first. Keeping both current through the year is the core of construction bookkeeping.

A WIP schedule is only as good as the ledger feeding it. If costs are landing in generic expense accounts, see how a construction chart of accounts separates direct job costs from overhead before trying to reconcile a WIP report. New York contractors should also check how sales tax was handled on each job, because tax paid on materials for a capital improvement is a permanent job cost that belongs in the estimate rather than sitting in a recoverable account.

A work-in-progress schedule is only as reliable as the billing detail feeding it. If your projects bill through the AIA G702 and G703 pay application chain, the schedule of values on that application has to reconcile to your cost codes before percent complete means anything.

How to read a construction WIP report, line by line

A WIP report is one row per open job. Read left to right, and each column answers a specific question.

Column	What it is	What it tells you
Contract amount	Transaction price allocated to the performance obligation, including approved change orders	Whether change orders are actually making it into the schedule
Estimated total cost	Current best estimate of cost at completion	Whether the estimate is being updated or is frozen at bid
Cost to date	Job-to-date cost incurred	Real spend, assuming job costing is clean
Percent complete	Cost to date ÷ estimated total cost	Progress, under the cost-to-cost input method
Revenue earned to date	Percent complete × contract amount	What you have actually earned, regardless of billing
Billed to date	Cumulative billings	What you asked the owner for
Over / (under) billing	Billed to date − revenue earned to date	Contract liability if positive, contract asset if negative
Estimated gross profit	Contract amount − estimated total cost	Whether margin is fading run to run

Two refinements matter if you want the schedule to survive review. First, the multiplier is the transaction price allocated to the performance obligation (ASC 606-10-32-2), not simply the face value of the signed contract — unpriced change orders and variable consideration are measured and constrained before they belong in that column. Second, ASC 606-10-55-21 requires you to strip out costs that do not depict progress. Wasted material, significant rework, and qualifying uninstalled materials all inflate percent complete and make an underbilled job look overbilled.

Getting those columns right depends entirely on the cost data underneath them. If job costing is coding labor and materials to the wrong job or the wrong phase, every downstream column on the WIP is wrong too — and so is your over/under position. The same is true of labor burden: understate burden and cost to date is understated, percent complete is understated, and the job silently reports as more overbilled than it really is.

The schedule you prepare for the books is not what reaches your return. how long-term contracts are reported for tax explains why Section 460 requires its own cost-to-cost computation and where the book and tax completion factors part company.

The last column of the schedule becomes two lines on the financial statements. how the over and under position is presented on the balance sheet covers the contract-level netting rule and the retainage classification most contractors get backwards.