What a WIP Schedule Tells You That the P&L Doesn't

The Profit & Loss statement shows the company as a whole for a period of time. That is useful. It is also incomplete for a contractor with several jobs open at once, because strong jobs and weak jobs land in the same revenue and cost totals.

A work-in-progress (WIP) schedule looks at the jobs themselves: what each one should have earned so far, what has actually been billed, and the gap between the two. That gap is the number that explains why the P&L can look fine while one job is quietly going sideways.

This article walks through how to read one. The job-level habits behind it, such as re-estimating cost to complete and tracking committed costs, are covered in tracking job profitability while the job is still running.

The Columns on a Basic WIP Schedule

Each open job gets one row. A workable schedule starts with:

• Contract amount, including approved change orders
• Estimated total cost for the whole job, re-estimated rather than left at the original bid
• Cost to date
• Percent complete
• Earned revenue to date
• Billed to date
• Over or under billed, the difference between the last two

A schedule prepared for a lender or surety usually adds cost to complete, retainage, collections, and expected completion date. Preparing your books for a bank loan or bonding application lists those.

How the Numbers Are Calculated

Three formulas do most of the work. A common way to measure progress is cost-to-cost, which treats the share of estimated cost already spent as the share of the job that is complete:

1. Percent complete = cost to date ÷ estimated total cost
2. Earned revenue = percent complete × contract amount
3. Over or under billed = billed to date − earned revenue. A positive number is overbilled. A negative number is underbilled.

Cost-to-cost is only as good as the estimate behind it. A large material delivery that is not installed yet, or a cost overrun, pushes percent complete up even though the field is not that far along. Check the result against what the field says is actually done.

A Worked Example: Two Jobs, One P&L

The figures below are illustrative, not a client result.

Job A

• Contract $200,000, estimated total cost $160,000
• Cost to date $80,000, so 50% complete
• Earned revenue: 50% × $200,000 = $100,000
• Billed to date: $130,000
• Overbilled by $30,000

Job B

• Contract $120,000, estimated total cost $100,000
• Cost to date $60,000, so 60% complete
• Earned revenue: 60% × $120,000 = $72,000
• Billed to date: $50,000
• Underbilled by $22,000

If the books record revenue when it is invoiced, the P&L shows $180,000 of revenue against $140,000 of cost on these two jobs: $40,000 of gross profit. The WIP schedule says the jobs have earned $172,000 so far, so gross profit to date is really $32,000. The company total is off by $8,000. That is the net of a $30,000 problem and a $22,000 problem that point in opposite directions.

What the Gap Is Telling You

Overbilled (Job A). You have collected or invoiced $30,000 for work you still owe. The cash feels good now, but the remaining half of the job has to be built with less billing left to come in. A schedule full of overbilled jobs can look like a healthy bank balance and really be unfunded work.

Underbilled (Job B). You have done $22,000 of work you have not invoiced. That is cash you are financing for the customer, and it usually points to a billing process problem: a missed pay application, an unsigned change order, or invoices held for paperwork. How progress billing affects cash flow covers the steps between work done and money received.

Underbilling can also be a warning sign rather than a billing delay. If costs are running over the estimate, cost-to-cost reports the job as further along than it is, which makes earned revenue, and the underbilling, look bigger. When a job keeps showing underbilled, confirm the estimate before you chase the invoice.

Where It Shows Up on the Balance Sheet

On accrual-basis financial statements, the WIP schedule feeds a balance-sheet adjustment so the P&L reports earned revenue rather than billed revenue:

• Overbillings are a liability, traditionally labeled billings in excess of costs and estimated earnings.
• Underbillings are an asset, traditionally labeled costs and estimated earnings in excess of billings.

Under the current revenue recognition standard for contracts with customers (ASC 606), these are generally presented as contract liabilities and contract assets. Lenders and sureties look for that line, and it should agree with the schedule. How to use your balance sheet covers reading the rest of that statement.

This is management and financial-statement reporting. How the same contracts are reported for tax depends on your accounting method and the long-term contract rules. Cash vs. accrual accounting for contractors and the job-costing article linked above cover that distinction.

Keep the Monthly Review Short

Once a month, after costs for the month are posted:

• Update estimated total cost on every open job
• Recalculate percent complete, earned revenue, and over or under billing
• Compare each job's projected profit with last month's
• Pick the two jobs that need attention before the next billing cycle

The schedule does not replace the P&L. It explains what the P&L is hiding.

How KDM Accounting Services Can Help

At KDM Accounting Services, we help Florida contractors make job-level numbers usable. We can:

• Set up a WIP schedule that fits the number of jobs you actually run
• Keep job costs coded so the schedule can be trusted
• Tie over- and underbillings to the balance sheet each month
• Prepare the schedule in the form a lender or surety expects

We do not turn this into a complicated package unless the business needs it. The point is visibility.

The Company Can Look Fine While One Job Is Not

The P&L tells you how the business did for the month. A WIP schedule tells you how each job is doing while it is still open. Contractors need both.

If you want help seeing open jobs more clearly heading into Q4, contact KDM Accounting Services. We'll help you organize the numbers so one report is not doing the work of two.

Related reading

• Tracking Job Profitability While the Job Is Still Running
• How to Prepare Your Books for a Bank Loan or Bonding Application
• How Progress Billing Affects Cash Flow
• How to Use Your Balance Sheet Without Getting Overwhelmed
• Cash vs. Accrual Accounting for Contractors
• Bookkeeping services