Key Takeaways
- A construction WIP schedule compares what each job has earned with what has been billed.
- Overbilling means invoices exceed earned revenue; underbilling means earned revenue exceeds invoices.
- High billings can make an improperly prepared P&L look profitable even when some revenue hasn’t been earned.
- Updated cost-to-complete estimates help reveal shrinking job margins before closeout.
- Monthly WIP reviews support accurate reporting, cash planning, and conversations with CPAs, lenders, and sureties.
Why Does My Construction Profit Jump Around?
Your crews are busy. Progress invoices are going out. The P&L shows a great month.
Then two projects close, final bills arrive, and suddenly the profit seems to disappear.
If you own a roofing, excavation, electrical, concrete, or general contracting business, this pattern may sound familiar. You know how much you’ve billed and what customers have paid. But those numbers don’t always tell you how much work you’ve actually earned—or how profitable each unfinished job will be.
That’s where a work-in-progress (WIP) schedule comes in.
The distinction is simple: Billings aren’t necessarily earned revenue. Cash collected isn’t necessarily profit. Understanding the difference can explain why monthly results fluctuate so dramatically.
What Is a WIP Schedule in Construction?
A construction WIP schedule is a job-by-job report that compares contract value, job costs, estimated costs to finish, revenue earned, and customer billings on projects still underway.
It helps owners answer three questions: How far along is each job? How much revenue have we actually earned? And does the latest cost estimate still support the profit we expected?
For qualifying contracts recognized over time, WIP calculations also support revenue recognition and month-end financial reporting. The appropriate accounting method depends on the contract and applicable reporting requirements.
A WIP isn’t just paperwork for a bonding company. It’s a way to see trouble while a job is still active.
The Six Numbers Every Contractor Should Know
1. Contract Value
The agreed price of the job, including approved change orders. Don’t assume every requested change order is collectible revenue.
2. Costs to Date
Actual job costs incurred so far: labor, materials, subcontractors, equipment, and other applicable direct costs. Reliable job costing is essential.
3. Estimated Total Cost
What you now expect the entire project to cost, not merely the original bid estimate. It includes costs already incurred plus a realistic estimate to finish.
4. Percentage Complete
Under a common cost-to-cost approach:
Costs to Date ÷ Estimated Total Cost = Percentage Complete
If you’ve incurred $240,000 of an estimated $400,000 in total costs, the job is 60% complete for this calculation. This isn’t necessarily the same as physical progress, and some costs require special treatment.
5. Earned Revenue
For the simplified cost-to-cost example:
Contract Value × Percentage Complete = Earned Revenue
A $500,000 job at 60% complete has earned $300,000.
6. Billings to Date
The cumulative amount invoiced, whether or not customers have paid. Comparing billings with earned revenue identifies the overbilling or underbilling position.
Overbilling vs. Underbilling: What’s the Difference?
Overbilling: You’ve Invoiced Ahead of the Work
Suppose you’ve earned $200,000 on a project but billed $250,000. You’re overbilled by $50,000.
Overbilling isn’t automatically a problem. Progress billing can help fund labor and materials. But it isn’t extra profit, and it doesn’t mean you’ve collected the invoice. You still have work to perform to earn that amount.
For applicable financial reporting, that excess generally represents a contract liability, not earned revenue.
Underbilling: You’ve Done More Work Than You’ve Invoiced
If you’ve earned $200,000 but billed only $150,000, you’re underbilled by $50,000.
That may indicate work awaiting the next billing cycle, delayed pay applications, or unresolved change orders. Not every underbilling is immediately billable or collectible.
For applicable reporting, it generally represents a contract asset. It also deserves attention because the business may be funding work before invoicing for it.
Five-Job Example: When a “Profitable” P&L Isn’t Telling the Whole Story
Imagine a contractor with five active jobs. All figures below are cumulative amounts to date, using simplified cost-to-cost calculations.
Job 1 — Commercial Roofing: $500,000 contract; $240,000 cost to date; 60% complete. Revenue earned is $300,000, but the contractor has billed $400,000. Overbilled: $100,000.
Job 2 — Sitework and Landscaping: $300,000 contract; $150,000 cost to date; 60% complete. Revenue earned is $180,000, while billings total $225,000. Overbilled: $45,000.
Job 3 — Electrical Buildout: $400,000 contract; $160,000 cost to date; 50% complete. Revenue earned is $200,000, against $240,000 billed. Overbilled: $40,000.
Job 4 — Excavation: $250,000 contract; $120,000 cost to date; 60% complete. Revenue earned is $150,000, but only $120,000 has been billed. Underbilled: $30,000.
Job 5 — Concrete Improvements: $200,000 contract; $90,000 cost to date; 60% complete. Revenue earned is $120,000, against $115,000 billed. Underbilled: $5,000.
Now combine those jobs:
- Total billed: $1,100,000
- Total earned revenue: $950,000
- Total costs incurred: $760,000
- Net overbilling: $150,000
Here’s the problem.
If the books incorrectly treat all $1.1 million of invoices as earned revenue, they may show $340,000 in gross profit ($1,100,000 minus $760,000).
But based on this WIP example, earned gross profit is $190,000 ($950,000 minus $760,000).
That’s a $150,000 overstatement of gross profit in the improperly billing-driven view. Both figures are before company overhead.
The contractor hasn’t necessarily lost $150,000, and we haven’t established how much cash was collected. The difference is about revenue timing. Properly adjusted accrual financial statements would reflect earned revenue rather than simply counting every invoice as revenue.
This is how a business can look unusually strong during heavy billing months, only to see apparent profits reverse later.
Why Do Jobs Look Profitable Until They Close?
Billing timing isn’t the only reason profits change. Contractors also experience profit fade: a job’s expected margin shrinks as actual costs and revised estimates become clearer.
Imagine a $400,000 project originally expected to cost $300,000. The estimated gross margin is 25%.
Later, labor overruns and materials push the projected total cost to $352,000. The expected margin falls to 12%.
Common causes include underestimated labor, material price increases, subcontractor overruns, unapproved change orders, missing job costs, and poor productivity.
A WIP report doesn’t cause profit fade. It helps reveal it before the final invoice.
How WIP Reporting Makes Monthly Profit More Reliable
A WIP schedule helps align revenue with work performed on contracts where progress-based recognition applies. Monthly adjustments prevent billings alone from driving the P&L.
But a good WIP won’t make profits perfectly smooth. If estimated costs change, recognized margins can legitimately change too.
The objective isn’t to manufacture steady results. It’s to produce numbers owners can explain and act on.
A meaningful WIP review belongs in the month-end close, alongside account reconciliations and job-cost checks.
Why Do Sureties, Lenders, and CPAs Ask for WIP Schedules?
Sureties and lenders may use WIP reporting to understand contract performance, future cash requirements, backlog, and risks from profit fade or persistent underbillings.
CPAs may need the schedule to assess revenue recognition, contract balances, and financial statement adjustments.
They aren’t asking merely how much you’ve invoiced. They’re asking whether the business understands the financial position of its unfinished work.
How Often Should a Contractor Update a WIP Schedule?
For contractors with significant projects spanning reporting periods, monthly updates are a practical starting point.
A useful process includes:
- Confirm job costs and billings are complete.
- Update approved contract changes.
- Ask project managers for realistic costs to complete.
- Recalculate percentage complete and earned revenue.
- Investigate overbillings, underbillings, and margin changes.
- Reconcile WIP reporting with the financial statements.
Your bookkeeper can report what has been spent. Your project team helps estimate what remains. Both perspectives matter.
From WIP Bookkeeping to Better Job-Margin Decisions
Accurate construction bookkeeping provides the foundation: job costs, billing records, and monthly WIP adjustments.
Fractional CFO oversight turns that information into decisions.
Which projects are losing margin? Are labor estimates realistic? Are certain types of work consistently underpriced? Is too much cash tied up in underbillings? Can existing cash cover the work remaining on heavily overbilled jobs?
These are management questions, not simply accounting questions.
Conclusion
If your construction company’s profit jumps around every month, the answer may be hiding in unfinished jobs.
Billing ahead can inflate a poorly prepared P&L. Missing costs and outdated estimates can conceal shrinking margins. Then, when jobs close, those problems become impossible to ignore.
A reliable WIP schedule helps separate what you’ve billed, what you’ve earned, and what each job is expected to make—before the surprises arrive.
Know What Your Construction Jobs Are Actually Earning With PHG Advisory
At PHG Advisory, we help contractors strengthen the bookkeeping and financial visibility behind their projects.
That can include job-cost tracking, WIP reporting, over/underbilling reviews, account reconciliations, and accrual-based month-end closes. Through Fractional CFO services, we can also help owners review job margins, assess cost-to-complete assumptions, understand working-capital pressure, and make better bidding and operational decisions.
If profits seem to change every time a job closes, contact PHG Advisory to discuss WIP reporting and financial support built around your construction business.
Frequently Asked Questions
What is a WIP schedule in construction?
A WIP schedule tracks unfinished jobs, comparing contract values, estimated total costs, costs incurred, earned revenue, and amounts billed. It helps reveal current job margins and over/underbilling.
How do you calculate percentage complete?
Under a common cost-to-cost method, divide costs incurred to date by the current estimated total cost. The appropriate method depends on the contract and accounting requirements.
Is overbilling bad for contractors?
Not necessarily. Billing ahead can support working capital, but it doesn’t automatically create earned revenue or profit. The contractor still has obligations to complete.
Why does my contractor P&L change so much?
Payment and billing timing, missing WIP adjustments, unrecorded costs, and revised job estimates can all create large changes in reported profit.
Why does my bonding company need a WIP schedule?
Sureties commonly examine WIP reports to evaluate unfinished contracts, projected margins, cost estimates, backlog, and potential financial risk.
How often should WIP be updated?
Monthly is a useful standard for contractors managing meaningful open projects, with more frequent reviews when risk or project conditions warrant.
Can a bookkeeper prepare a WIP schedule?
Yes, provided job costs, billings, and project estimates are reliable. Project managers and accounting professionals should collaborate to verify cost-to-complete assumptions and reporting treatment.
