Contractor WIP Series: Your WIP Schedule Is More Than an Accounting Requirement
Contractors do not need another accounting report they cannot use.
They need to know what they earned, what it cost to earn it, where each project is headed, and whether today’s cash is masking tomorrow’s problem.
That is what a properly prepared work-in-process schedule can reveal.
This five-part series breaks down WIP accounting in practical terms, from revenue recognition and overbillings to cost allocation and the mistakes that distort job margins.
Part One.
A work-in-process schedule is often treated like something prepared once a year for the CPA, bank, or bonding company.
That misses its real value.
A good WIP schedule tells an owner:
How much revenue has actually been earned on each project
Whether reported gross margins are holding
Which jobs are gaining or fading
Whether current cash reflects real profitability or aggressive billing
Whether projected costs are complete and realistic
Where management needs to intervene before a problem gets bigger
The basic WIP calculation
Under a cost-to-cost input method, the percentage complete is generally calculated as:
Percentage Complete =Total Costs Incurred to Date divided by Current Estimated Total Costs
That percentage is then applied to the transaction price to estimate cumulative revenue earned:
Revenue Earned to Date = Percent Complete (from above calculation) X Contract Price
If a contractor has incurred $400,000 of costs and expects the project to cost $1 million, the project is approximately 40% complete.
If the transaction price is $1.25 million, cumulative revenue earned would generally be $500,000.
That produces an expected gross profit of $100,000 to date, not necessarily the amount invoiced and not necessarily the cash collected.
Why this matters to owners
Without a reliable WIP schedule, an owner may see cash in the bank and believe a project is profitable. But that cash could represent mobilization deposits or front-loaded billings for work that has not yet been performed.
The reverse can also happen. A project may be profitable and progressing well, but billing has fallen behind the work performed. The contractor has effectively financed part of the customer’s project.
WIP separates three things that are frequently confused:
Work performed
Amounts billed
Cash collected
They are connected, but they are not interchangeable. Each is it’s own transaction cycle.
A dependable WIP schedule turns the income statement from a historical document into a management tool. It gives owners a clearer view of what the company has truly earned and what it may still be obligated to spend.
When contractors understand their true margins, they price risk more intelligently, protect working capital, and build a stronger company.
Let’s Connect
Is your WIP schedule helping you operate, or is it only being updated for year-end reporting?
Bilotta & Company’s Contractor Compass® helps construction companies connect job costing, WIP, cash flow, forecasting, and financial reporting into one consistent operating rhythm.
Close → Analyze → Forecast → Decide.