WIP report and over/under billing field guide for plumbing contractors

Read this first: education, not accounting advice

This guide explains how a work-in-progress schedule and over and under billing work, in plain field terms, so you can read the report and ask better questions. It is general education. It is not accounting, tax, or legal advice, and it is not a substitute for a construction CPA who knows your books.

Revenue recognition, the method you report on, and how every line on the WIP hits your financial statements depend on your company's accounting method and your situation. Percentage-of-completion, completed-contract, cash, and the way ASC 606 applies to your contracts are decisions you make with your CPA, not off a web page. Where this guide shows a number, it is a simple illustration to make the mechanics clear, not a figure to copy onto your statements.

So treat what follows as the map, not the territory. Run the actual treatment past your CPA and tie it to your own books. That caveat repeats through this guide on purpose, because the WIP is where a small wrong assumption turns into a wrong financial statement, and the financial statement is what your bank and your surety read.

What a WIP report is, and why it tells you the truth

A WIP report, short for work-in-progress schedule, is a single page that lists every open contract and shows, job by job, the original contract value plus approved change orders, the costs spent to date, the estimated cost still to come, the resulting percent complete, the revenue earned so far, and the amount billed. Line those columns up and the report answers two questions you cannot answer from the bank balance: have you billed ahead of the work or behind it, and is the profit you bid still there.

The reason it tells the truth is that it separates billing from earning. Cash in the bank tells you money moved. It does not tell you whether that money was earned or borrowed against work you have not done yet. The WIP does. It pins each job's revenue to the work actually put in place, then sets your billings against that, so an overbilled job stops masquerading as profit and an underbilled job stops hiding as a cash hole you cannot see.

This sits right between job costing and cash flow. The job-costing guide covers capturing the cost per job that the WIP runs on, and the cash-flow guide covers what over and under billing does to the money in the account. The WIP is the report that ties the two together. Get it right and you see profit and cash coming a quarter out. Get it wrong, or only run it at year-end, and you find out in March what was true last June. As always, how the figures are recognized on your statements is a CPA-and-method question.

Why the WIP is the report you live or die by

Three audiences read your WIP, and all three can end your company. Your bank reads it to decide whether to keep the line of credit open. Your bonding company, the surety, reads it to decide how much work they will let you carry. And you read it, or should, to catch a job going bad while you can still do something about it. A contractor with a clean, current WIP gets bonding and credit. A contractor whose WIP is a year-end guess gets questions, then limits, then a no.

It matters because it catches the two things that kill contractors early enough to act. The first is profit fade, the bid margin quietly eroding job over job as costs run past estimate. The second is the cash distortion from over and under billing, where you feel flush on borrowed billings or get starved by work you did the job on but never invoiced. Neither shows up in the checkbook until it is too late. Both show up on a monthly WIP while there is still runway.

Take this part as blunt: in this trade you are judged by your WIP. The surety underwriter and the bank's credit analyst form their picture of whether you run a tight shop from this one schedule. A messy WIP signals a messy company even when the work is good. How the numbers are recognized for your statements stays a question for your CPA and your method, but the discipline of producing a clean WIP every month is yours.

What goes on the schedule

The WIP is a row per open job and a fixed set of columns. Each row carries the job from its contract value through to where it stands today, and the financial status of your whole backlog is the sum of those rows. A reader should be able to scan one line and know the size of the job, how far along it is, how the profit is tracking, and whether you have billed ahead or behind.

The standard columns are the contract value including approved change orders, total estimated cost at completion, costs incurred to date, estimated cost to complete, percent complete, earned revenue, billings to date, and the over or under billing that falls out of the last two. Many schedules also carry the original estimated margin next to the current estimated margin, because the gap between those two is profit fade in a single glance.

Pending and unapproved change orders are the trap in this section. Costs for changed scope land in the cost columns whether or not the change order is signed, so if the added contract value is not in too, the job reads as a loss that is really just unbilled, unapproved scope. How you treat pending change orders on the schedule is a method-and-CPA call, but the field discipline is the same: get the change order approved and priced so the contract value column reflects the work the cost column already shows.

How is percent complete calculated?

The common method is cost-to-cost: percent complete equals costs incurred to date divided by the total estimated cost at completion. If a job has run up 200,000 dollars of cost against a total estimated cost of 400,000 dollars, it is 50 percent complete. The logic is that the cost you have spent, against the cost you expect to spend in total, is a fair stand-in for how much of the work is in place.

This is the most widely used basis for percentage-of-completion reporting, and it is the one most general contractors and subs run on. It has a known weakness worth naming: it is only as honest as the denominator. The total estimated cost is your costs to date plus your estimate to complete, so a low or stale estimate to complete makes a job look further along and more profitable than it is. Front-loaded costs, a big material buy early, can also push the percent ahead of the physical work.

Cost-to-cost is not the only measure of completion, and whether it is right for a given contract is a method-and-CPA decision. Some jobs are measured by units installed or labor hours rather than cost. The point to carry: the percent complete drives the earned revenue, so it is not a casual number. It is the hinge the whole schedule turns on, and your CPA and your method govern which basis is correct for your books.

The inputs the WIP runs on

A WIP is only as good as five inputs, and four of them come straight off your job-cost system. Get these wrong and every column downstream is wrong with them. Get them right and the schedule mostly fills itself.

The contract value is the signed contract plus every approved change order, not the original number alone. Costs to date are the actual costs charged to the job, which is where accurate job costing earns its keep. The estimate to complete is the judgment call, the honest dollar figure of cost still to come. Total estimated cost is costs to date plus the estimate to complete. Billings to date is what you have invoiced the owner, including approved change-order billings. Everything else on the schedule, percent complete, earned revenue, over or under billing, is calculated from those.

What earned revenue actually means

Earned revenue is the share of the contract you have actually earned by the work in place, regardless of what you have billed. The common calculation is percent complete times the revised contract value. A job that is 50 percent complete on a 500,000 dollar contract has earned 250,000 dollars, whether you have billed the owner zero or the whole amount. Earning and billing are two different events, and the gap between them is the whole point of the schedule.

This is the line that separates a WIP from an invoice register. Your billings follow a schedule of values, a pay-application cycle, and whatever you could negotiate up front. Your earnings follow the work. They rarely match in any given month, and they are not supposed to. Earned revenue is the neutral measure that says how much of the contract you have genuinely converted into work on the ground.

How earned revenue is recognized on your income statement is governed by your accounting method and is squarely a CPA question, especially under ASC 606, which frames it as revenue recognized as you satisfy the performance obligation over time. The mechanics in this guide show you how to read the number. The recognition belongs to your CPA and your method.

What is overbilling?

Overbilling is when your billings to date exceed your earned revenue. You have invoiced the owner for more than the work you have actually put in place. On the financial statements this shows up as billings in excess of costs and earnings, and it sits on the balance sheet as a liability, because it represents work you still owe. Carry the simple example forward: a job 50 percent complete on a 500,000 dollar contract has earned 250,000 dollars, so if you have billed 300,000 dollars, you are overbilled by 50,000 dollars.

The blunt way to think about it: overbilling is borrowed cash, not profit. That extra 50,000 dollars is in your account, and it feels like money you made, but you have not earned it yet. You owe it in future labor and material to finish the job. Spend it as profit and you have spent the funding the back half of the job was going to run on.

Some overbilling is normal and even healthy early in a job, and the next sections get into when it helps and when it is a warning. The accounting treatment, how billings in excess are stated and recognized, is a method-and-CPA matter. The field reading is simple: billed more than earned means cash now that is not yours to keep.

What is underbilling?

Underbilling is the reverse: your earned revenue exceeds your billings. You have done more work than you have invoiced. On the statements this is costs and earnings in excess of billings, and it sits on the balance sheet as an asset, because it is real work that you are owed for and have not yet billed. Same example: a job 50 percent complete on a 500,000 dollar contract has earned 250,000 dollars, so if you have only billed 220,000 dollars, you are underbilled by 30,000 dollars.

Underbilling is a cash and financing problem wearing the costume of an asset. That 30,000 dollars of work is done. You paid the crew and bought the material. But you have not billed it, so the cash has not come back, which means you are financing the owner's project out of your own account. A pile of underbilled work across several jobs is one of the most common reasons a profitable contractor runs short of cash, and it is invisible in the checkbook.

Find it and bill it. Underbilling usually means a missed billing, scope you did but never captured on a pay application, or change-order work performed and not invoiced. The recognition of costs and earnings in excess is a CPA-and-method question, but the action is yours and it is urgent: chase the unbilled work onto an invoice.

Why some overbilling is normal, and when it is not

A modest amount of overbilling early in a job is good practice and most owners and their reviewers expect it. When you front-load the schedule of values so mobilization and early work carry a fair share of the value, you pull cash in when your costs are highest, and the job funds itself as it runs instead of you carrying it. Billed a little ahead of the work in the early going is how a healthy job is supposed to look.

The trouble starts when the overbilling is large, or when it shows up late in a job. A heavily overbilled job near completion has usually borrowed against itself. You have billed out most of the contract, the remaining billings cannot cover the remaining cost, and the cash that was supposed to finish the work is gone. Worse, large late-job overbilling can hide a loss: if the estimate to complete has crept up and nobody adjusted it, the job looks fine only because you billed ahead of a cost that is now bigger than you are admitting.

So read overbilling by where the job is. Early and modest is funding. Large and late is a red flag that the job is borrowing from itself or covering a fade. How any of it is stated on your books is a method-and-CPA call, but the pattern in the numbers is something you can and should read every month.

The underbilling that quietly starves cash

Chronic underbilling is the one to fear, because it punishes you for doing the work. Every dollar of underbilling is a dollar of completed work you have funded yourself and not collected on. Across a busy backlog it adds up fast, and it produces the exact paradox that catches good operators: the more work you do, the tighter your cash gets, because you are doing the work and not billing for it.

The causes are almost always operational, not accounting. A pay application went in light because the field did not report the work in time. A change order got performed and never priced or billed. Stored material is on the job and not on an invoice. Scope crept and nobody captured it. Each of those is a missed billing, and a missed billing is an interest-free loan to the owner that you never agreed to make.

The fix is a billing discipline, not a journal entry. Bill on time, bill all of the work in place, and capture change orders as they happen so the contract value keeps pace with the cost. The cash-flow guide gets into the schedule of values and the collection cadence that keep billings current. The point for the WIP is direct: underbilling is found money and a cash leak at the same time. Find it on the schedule, then go bill it.

The estimate to complete is the judgment call

Every other number on a WIP is a fact you can pull from a record. The estimate to complete is a judgment, and it is the one that distorts everything when it is wrong. Because percent complete is costs to date over total estimated cost, and total estimated cost is costs to date plus the ETC, a low ETC inflates your percent complete, inflates your earned revenue, and makes an overbilled job look balanced. A high ETC does the reverse. The ETC is the single input most able to make a bad job look good.

It has to be honest and it has to be current. The danger is the lazy ETC, the original budget minus costs to date, which silently assumes the job will finish exactly on estimate no matter what has already gone wrong. That is not an estimate, it is a hope. A real ETC is the project manager walking the remaining scope and pricing what it will actually take from here, given what the job has taught so far.

The PM owns the ETC, and it should be their number, reviewed monthly. The person who knows whether the rough-in is really 80 percent done or just looks it is the one running the job, not the one running the spreadsheet. How the ETC flows into revenue recognition is a method-and-CPA matter, but the integrity of the number is a field responsibility. Update it honestly or the whole schedule lies.

What is profit fade?

Profit fade is the estimated margin on a job dropping from one WIP update to the next. You bid the job at a 20 percent margin, and over a few months of updates it slides to 15, then 12, then 8. The work is the same contract, but the estimated cost at completion keeps climbing, so the profit keeps shrinking. Fade is the earliest warning a job is going bad, and it is visible on the WIP long before the loss shows up in the bank.

For example, a job bid with a 500,000 dollar contract and a 400,000 dollar estimated cost carries 100,000 dollars of expected profit, a 20 percent margin. If the estimate to complete creeps up so total estimated cost is now 440,000 dollars, the expected profit is 60,000 dollars, a 12 percent margin. Nothing was lost in cash yet. The fade is the signal that something is eroding the job, and you caught it with months left to react.

When you see fade, find why. Labor running over, a material escalation nobody re-priced, scope performed without a change order, a bad original estimate finally surfacing. Carrying the original margin next to the current margin on the schedule makes fade jump off the page. The accounting for the margin change is a CPA-and-method question. Chasing down the cause while the job is still open is the part that saves the money.

The formulas, kept simple

Four lines do the work on a WIP, and they are arithmetic, not magic. Percent complete is costs to date divided by total estimated cost. Earned revenue is percent complete times the revised contract value. Over or under billing is earned revenue minus billings to date, where a positive number is underbilled and a negative number is overbilled. Estimated gross profit is the revised contract value minus the total estimated cost.

Run them on the example end to end. Costs to date 200,000 dollars over a total estimated cost of 400,000 dollars is 50 percent complete. Half of a 500,000 dollar contract is 250,000 dollars of earned revenue. If billings are 300,000 dollars, earned minus billed is negative 50,000, so the job is overbilled by 50,000 dollars. Estimated gross profit is 500,000 minus 400,000, or 100,000 dollars, a 20 percent margin you then watch for fade.

Keep the formulas simple and the inputs clean, because the math is never the hard part. The hard part is feeding it accurate costs and an honest estimate to complete. How the resulting figures are recognized and presented on your statements is governed by your accounting method, so set that up with your CPA rather than reading it off these four lines.

Garbage in: the WIP is only as good as the costs

A WIP report is a calculation engine, and it has no way of knowing whether the numbers you feed it are true. If costs are coded to the wrong job, the percent complete is wrong on two jobs at once, the one missing the cost and the one wearing it. If the job costs are weeks behind, the schedule is reporting a job that no longer exists. The schedule cannot be more accurate than the cost data underneath it, full stop.

This is the direct tie to job costing, and it is why the two practices live together. The job-costing guide covers capturing burdened labor, material at landed cost, equipment, and subs against the right job in real time. That discipline is exactly what the WIP runs on. Clock hours to the wrong job, leave consumables off, or let invoices pile up uncoded, and the WIP inherits every one of those errors and presents them as fact on a page your bank reads.

So the WIP is downstream of the field. The two inputs that have to be airtight are the costs to date, which come from job costing, and the estimate to complete, which comes from the PM. Get those right and the report tells the truth. Get them wrong and you have produced a confident, precise, wrong document. Tie the cost capture to your books with your CPA so the WIP and the financial statements agree.

Run it monthly, not at year-end

A WIP run once a year at tax time is an autopsy. It tells you which jobs died and roughly why, long after every one of them is closed and the money is spent. The version that protects you runs monthly, or more often on fast jobs, because the value is in the trend, not the snapshot. One month tells you where a job stands. Three months in a row tells you which way it is heading.

Monthly is where you catch profit fade in time to act. A margin sliding from 20 to 16 to 12 over three updates is a job you can still intervene on, by rebidding open scope, chasing the change orders that are eroding it, or tightening the crew. The same fade seen once at year-end is just a loss you get to explain. The whole advantage of the WIP is lead time, and lead time only exists if you run it on a cadence.

It also keeps you ready for the people who ask for it on short notice. A surety or a bank can ask for a current WIP at any time, and the contractor who already runs one monthly hands it over clean while the one who runs it annually scrambles to build a believable story. How the figures are recognized stays a CPA-and-method matter. The monthly discipline of producing the schedule is the part that does not wait for your accountant.

How over and under billing drives cash

Over and under billing is not just an accounting curiosity. It is the steering wheel on your cash. An overbilled job is cash in your account now, billed ahead of the cost you will spend to finish, which funds the work as it runs. An underbilled job is the opposite, a cash gap where you have spent and not collected. The net of overbilling and underbilling across your whole backlog is one of the biggest swings in your cash position, and it moves every month.

This is the direct link to the cash-flow guide, which covers the 13-week forecast and the levers you pull when cash tightens. The WIP feeds that forecast. The underbilled jobs are the receivables you have not even created yet, the work done and not invoiced, and they belong on your radar alongside aged receivables and retainage. A backlog that is quietly drifting toward underbilled is a cash crunch forming a quarter out, visible on the WIP before it ever reaches the bank.

Read the two reports together. The WIP shows whether you are billing ahead of or behind the work. The cash forecast shows whether that timing clears payroll. The mistake is reading the overbilled cash as profit you can spend, when it is funding the second half of the job. How the balances are recognized is a CPA-and-method call. The cash impact is something you manage with the field, every month.

How the surety and the bank read your WIP

To a surety underwriter and a bank credit analyst, the WIP is the most revealing document you produce. It shows your backlog, your billing discipline, and whether your jobs make the money you said they would. From it they read your bonding capacity, the total contract value they will let you carry, and the health of the work you already have on. A clean, current, internally consistent WIP is a large part of how a contractor earns bonding and credit.

They look for specific things. Are jobs heavily overbilled near completion, which signals borrowing from the job. Is there chronic underbilling, which signals a cash strain. Is profit fade running across the schedule, which signals the estimates are soft or the work is slipping. Do the WIP totals tie to the financial statements, which signals whether the books are actually under control. Each of those is a question the schedule answers before they even ask it.

Because the surety and the bank rely on it, the WIP usually needs to be prepared to the standard your CPA and your surety expect, often reviewed or audited financial statements with the WIP as a supporting schedule. The exact format, the level of CPA involvement, and the accounting method behind it are decisions to make with your construction CPA and your bonding agent. The discipline of keeping it clean every month is what makes the once-a-year review go smoothly.

Completed-contract, cash, ASC 606, and tax versus book

Percentage-of-completion is the most common method behind a WIP, but it is not the only one, and which method applies to your company is a decision for your CPA, not a default. The completed-contract method recognizes revenue and cost only when a job finishes, which can suit short-duration work but distorts the picture on long jobs. The cash method recognizes on cash in and out. Larger contractors generally report percentage-of-completion for both book and bonding purposes because it matches revenue to the work.

ASC 606 is the revenue-recognition standard that governs how and when revenue is recognized for financial-statement purposes, framing it around satisfying performance obligations over time. For most construction contracts that ends up looking like percentage-of-completion, but the determination, the performance obligations, and the inputs are technical and contract-specific. This is firmly CPA territory.

The wrinkle that trips up owners is that your tax method and your book method can differ. You might report percentage-of-completion on your financial statements and use a different method for tax, within the rules. The interaction of book method, tax method, contract size, and your entity is exactly what a construction CPA is for. Do not pick a method off a guide. Pick it with your accountant against your books and your tax situation.

What is my WIP report warning me about?

A WIP that you read on a cadence starts to talk to you, and a handful of patterns are the ones that mean trouble. None of them require an accounting degree to spot. They require looking at the schedule every month and knowing what a bad shape looks like.

Large swings in a job's percent complete or margin from one update to the next mean the cost data or the estimate to complete is unstable, and unstable inputs make the whole row untrustworthy. Heavy overbilling late in a job means you have likely borrowed against it. Chronic underbilling across several jobs means cash is leaking into unbilled work. Profit fade across updates means estimates are soft or jobs are slipping. A job stuck at 99 percent complete for months is usually one nobody wants to close because closing it will surface a loss or a punch list nobody priced. And a negative cost to complete, where you have somehow spent more than the total estimate, means the estimate at completion was never updated and the job is already over.

Each of these is a flag, not a diagnosis. The schedule tells you which job to go look at, and then you go find out why. What the flag means for your statements is a CPA-and-method question. What it means for the job is a conversation with the PM, this month, while the job is still open.

Fixing a WIP that has drifted

When the schedule shows trouble, the fix is operational and it is the same short list every time. Start with the costs. Make sure every cost is coded to the right job and the job-cost data is current, because a drifted WIP is often just stale or miscoded costs rather than a real problem. Clean inputs sometimes make a scary row look normal again.

Then fix the estimate to complete. Have the PM walk the remaining scope and price it honestly from where the job actually is, not from the original budget minus spend. An honest ETC corrects the percent complete, the earned revenue, and the margin all at once, which is why it is the highest-impact fix on the board. After that, address the billing: bill the underbilled work onto a pay application, and capture any change orders so the contract value catches up with the cost the changed scope already created.

The standing routine that prevents drift is a monthly WIP review with the PM on each open job, going line by line through costs, ETC, billings, and margin. The owner and the PM in the same room over the schedule once a month is what keeps small problems from becoming year-end surprises. How any correction flows to the statements is a CPA-and-method matter, so loop your accountant in on the treatment while you and the field own the inputs.

What to document

A WIP is a document you will be asked to defend, by your surety, your bank, and your CPA, so the support behind it has to exist and tie out. The schedule itself is the headline. The cost reports and the estimate-to-complete support are what prove the headline is true.

Keep the monthly WIP schedule, the job-cost report it was built from, and the documentation behind each estimate to complete, so a reviewer can trace any number back to its source. Keep the approved change orders that move the contract value, and a record of who reviewed each job's ETC and when. A field tool that captures costs to the job in real time, like FieldOS, keeps the cost side of that record current and tied to the job, which is the input the whole schedule depends on. Confirm the treatment of every line with your CPA, because the support is what turns a schedule into a statement someone will lend against.

Common mistakes

• Running a WIP only at year-end, so problems surface as losses instead of warnings.
• Using a guessed or stale estimate to complete, which distorts percent complete, earned revenue, and margin.
• Letting jobs run chronically underbilled, so completed work starves the company of cash.
• Treating overbilling as profit and spending the cash that was funding the rest of the job.
• Ignoring profit fade across updates instead of chasing down why the margin is eroding.
• Coding job costs to the wrong job, which makes the percent complete wrong on two jobs at once.
• Leaving pending change-order cost on the schedule with no matching contract value, so the job reads as a loss.

Field checklist

Standards and references

A WIP is an accounting and management practice, not a code, so the references here are the accepted methods and the people who should set your specifics. Percentage-of-completion using the cost-to-cost basis is the common approach behind a construction WIP, and ASC 606 is the revenue-recognition standard that governs how revenue is recognized over time on the financial statements. Both are technical and contract-specific, and how they apply to your company is a determination for your construction CPA against your books and your accounting method, not a number to copy from a guide.

The WIP schedule format itself is largely driven by what your surety and your bank expect, typically as a supporting schedule to reviewed or audited financial statements. Set the format, the level of CPA involvement, and the method, percentage-of-completion, completed-contract, cash, and the tax-versus-book treatment, with your construction CPA and your bonding agent. Everything in this guide about recognition is general education and hedges to that professional judgment on purpose.

Three things are worth holding onto across all of it. Run the WIP monthly with an honest estimate to complete, because the trend and the ETC are where the truth lives. Know whether each job is overbilled or underbilled and what that does to your cash, because the schedule is your earliest read on both profit and cash. And watch profit fade across updates, because a margin sliding job over job is the warning you get while you can still act. The methods and the numbers vary with your company, your contracts, and your jurisdiction, so confirm the specifics with your CPA and tie them to your own books.

Terms and definitions

The WIP carries its own vocabulary, and the same idea shows up under different names across a job-cost report, a financial statement, and a surety's request. These are the terms used in this guide. Their precise accounting meaning and treatment depend on your method, so confirm them with your CPA.

Knowing the words keeps the conversation with your accountant and your bonding agent honest, because a rough paraphrase of any of these gets the meaning wrong in a way that matters on a statement someone lends against.

WIP (work-in-progress) schedule

A report of all open contracts showing contract value, costs, completion, earned revenue, and billings

Percentage-of-completion

Recognizing revenue as the job progresses, commonly on the cost-to-cost basis; a method-and-CPA decision

Earned revenue

Percent complete times the revised contract value; what you have earned regardless of what you billed

Overbilling

Billings in excess of earned revenue; a liability, since it is cash billed ahead of the work

Underbilling

Earned revenue in excess of billings; an asset, since it is work done and not yet billed

Estimate to complete (ETC)

The honest cost still to come on a job; the judgment input that drives the whole schedule

Profit fade

The estimated job margin dropping from one WIP update to the next; an early warning a job is going bad

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