For a contractor, the income statement shows what happened. The work-in-progress (WIP) schedule shows what is happening on the jobs that are still open, and whether the income statement can be trusted. That is why sureties, bonding agents, and bankers often turn to it first.
What a WIP schedule is
A WIP schedule lists every open contract and compares what has been earned with what has been billed. Under the revenue recognition standard (ASC 606), revenue on many construction contracts is recognized over time as work progresses, and many contractors measure that progress by comparing costs incurred to estimated total costs. The WIP schedule is where that calculation lives, one job at a time.
How it is built
Each open job gets one row. The core columns are:
- Contract value: the original contract plus approved change orders.
- Estimated total cost: cost to date plus the current estimate of cost to complete.
- Estimated gross profit: contract value minus estimated total cost.
- Cost to date: everything posted to the job so far.
- Percent complete: cost to date divided by estimated total cost.
- Earned revenue: contract value multiplied by percent complete.
- Billings to date: everything invoiced on the job so far.
- Over or under billing: billings to date compared with earned revenue.
A hypothetical example: a job has a contract value of $1,000,000 and an estimated total cost of $800,000. Cost to date is $400,000, so the job is 50% complete and has earned $500,000. If $560,000 has been billed, the job is over billed by $60,000. If only $450,000 has been billed, it is under billed by $50,000.
Over and under billings: what they signal
Over billings (billings in excess of costs and estimated earnings) mean you have billed ahead of the work. They appear as a liability on the balance sheet. Billing ahead is common and not a problem in itself, but that cash is tied to work still to be done. If it is spent on overhead or other jobs, the company may be short when it is time to finish.
Under billings (costs and estimated earnings in excess of billings) mean you have earned more than you have billed. They appear as an asset. Sometimes the cause is simple, such as a pay application that went out late or a change order waiting for approval. Other times, under billings point to a deeper issue: when costs run over budget and the estimate is not updated, percent complete rises and the schedule shows revenue that may never be collected. That is why many underwriters treat large or recurring under billings with caution.
Watch for profit fade, too. When estimated gross profit on a job shrinks from one WIP schedule to the next, it often signals an estimating or field problem. If a job is projected to lose money, accounting standards call for recognizing the entire anticipated loss as soon as it becomes evident (ASC 605-35-25-45 and 25-46, which remained in effect after ASC 606).
Why sureties, bonding agents, and banks read it closely
A surety is backing your ability to finish work, and the WIP schedule answers its key questions:
- Are profits real? The schedule shows whether reported revenue and margins rest on current estimates.
- How much work is ahead? Backlog and remaining gross profit show the pipeline and the capacity it will demand.
- How strong is working capital? Net over and under billings affect the cash position behind your balance sheet.
- Do estimates hold up? Comparing WIP schedules over time, and against closed jobs, shows whether your bids and forecasts prove accurate.
Lenders may review the same schedule when setting or renewing credit lines. A WIP that is current, consistent, and tied to the books supports a confident conversation with both.
Common mistakes
Most WIP problems start in the books, not the spreadsheet:
- Stale estimates. Estimated total cost still matches the original bid months into the job, so percent complete and profit are overstated or understated.
- Unrecorded change orders. Costs for extra work hit the job before the change order is added to contract value and budget, which overstates percent complete and understates margin. Tracking pending and approved changes separately helps.
- Costs coded to the wrong job. One miscoded bill distorts two jobs at once.
- Missing costs at month end. Subcontractor pay applications or vendor bills that have not been entered leave cost to date too low.
- A WIP that does not tie to the ledger. Total cost, billings, and the over or under billing balances should reconcile to the general ledger each month.
A monthly WIP routine
A steady rhythm keeps the schedule useful rather than stressful:
- Close the month. Enter vendor bills, payroll, and subcontractor pay applications, and accrue known costs.
- Review job cost coding. Fix anything posted to the wrong job or cost code.
- Update contract values. Add approved change orders and list pending ones separately.
- Refresh cost to complete. Ask project managers for a current estimate on each job, not just the original budget.
- Run the schedule. Calculate percent complete, earned revenue, and over or under billings.
- Tie it out. Reconcile to the general ledger and record the over and under billing adjustment.
- Review the exceptions. Look at profit fade, growing under billings, and any job trending toward a loss, while there is still time to act.
A brief note on the tax side
For federal tax purposes, IRC §460 generally requires the percentage-of-completion method for long-term contracts. Exceptions apply to certain residential construction contracts and to other construction contracts that a contractor expects, when the contract is entered into, to complete within two years, if the contractor meets the IRC §448(c) gross receipts test (adjusted for inflation each year) for that year. The 2025 federal tax law (P.L. 119-21) broadened the residential exception for contracts entered into in tax years beginning after July 4, 2025. Because your tax method may differ from your financial statement method, the WIP schedule often feeds both, and the two are worth reconciling.
How TreeStar can help
TreeStar sets up job cost accounting that mirrors how you estimate, reconciles job costs to the general ledger each month, and can prepare a WIP schedule your bonding agent and lender can follow. If your WIP and your books have drifted apart, we can help bring them back together.
This article is general information, not advice for your situation. Rules change; confirm current law before acting.
