A construction WIP (work-in-progress) schedule is the report that lists every open job with its contract value, estimated cost, cost to date, percent complete, revenue earned, and amount billed — and shows, job by job, whether the contractor is overbilled or underbilled. For US contractors, it is the schedule sureties and lenders ask for first, and it is how percentage-of-completion revenue actually gets computed each month. The biggest limitation: the schedule is only as reliable as the job-cost ledger and the estimate-to-complete behind it — and its US Generally Accepted Accounting Principles (GAAP) numbers are not the same thing as the tax computation under Internal Revenue Code (IRC) section 460.
Quick answer
Build one row per open contract: contract price including approved change orders, estimated total cost, cost to date, percent complete (cost to date ÷ estimated total cost), earned revenue to date (percent complete × contract price), billings to date, and over/under billing (billings − earned revenue). Update the schedule monthly as part of the close, tie every column back to the job-cost ledger, and re-approve every estimate. Overbillings are contract liabilities and underbillings are contract assets — neither is profit. Below are the formulas, a fully cross-footed example, and a monthly review checklist. For the bookkeeping basics underneath the schedule — job costing, retainage, change orders — see our guide to construction bookkeeping fundamentals.
What is a construction WIP schedule?
A construction WIP schedule (sometimes titled “contracts in process”) is a periodic report that reconciles three things for every uncompleted contract: what the job is worth (contract price), what it will cost (estimated total cost), and where it stands (cost incurred and revenue earned to date versus what has been billed). It is an accrual-basis management report; a contractor keeping pure cash-basis books cannot produce one, because the schedule depends on matching costs and earned revenue to periods regardless of when cash moves.
Three audiences read it. Owners and managers use it to spot fading margins and billing problems while there is still time to act. Sureties use it in underwriting: the IRS Construction Industry Audit Technique Guide (publication date May 2009; accessed July 28, 2026) explains that sureties require the extensive job-level supporting schedules in contractor financial statements so they can analyze and limit their risk.
Lenders use it the same way when monitoring construction lines of credit, because the over/under billing column reveals who is funding the work — the customer or the contractor. This article covers the schedule itself; broader sector topics live in our industry finance guides for small businesses.
Which formulas drive the schedule?
For US GAAP book purposes, most construction contracts recognize revenue over time under Accounting Standards Codification (ASC) Topic 606, because they typically meet at least one of the standard’s three over-time criteria — for example, the work creates or enhances an asset the customer controls, or the asset has no alternative use and the contractor has an enforceable right to payment for performance completed to date. The Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2014-09, which created Topic 606, states:
“recognize revenue to depict the transfer of promised goods or services to customers …” — Financial Accounting Standards Board, ASU 2014-09
For obligations satisfied over time, ASC 606 permits output methods and input methods to measure progress, and the cost-to-cost input method is the construction norm — the same measure the IRS describes for tax percentage-of-completion as (accessed July 28, 2026):
“comparing the total allocated contract costs incurred to date with the total estimated contract costs” — Internal Revenue Service, Construction Industry Audit Technique Guide
Three formulas produce the schedule:
- Percent complete = cost to date ÷ estimated total cost. Estimated total cost must include the full estimate at completion, not the original budget — and under ASC 606 the input measure is adjusted for items that do not depict performance, such as wasted materials or significant materials bought far ahead of installation (a Deloitte summary of the standard, accessed July 28, 2026, walks through these adjustments).
- Earned revenue to date = percent complete × contract price. Each period’s revenue entry is a cumulative catch-up: new earned revenue minus what was already recognized.
- Over/(under) billing = billings to date − earned revenue to date. A positive figure is an overbilling (a contract liability); a negative figure is an underbilling (a contract asset), per the contract-balance presentation guidance in ASC 606-10-45 summarized in the same Deloitte comparison.
Worked example: a complete, cross-footed WIP schedule
The following is a hypothetical illustration with made-up inputs for a fictional company, Mesa Ridge Builders LLC, a US commercial general contractor with accrual-basis books, a calendar year, and a monthly close. The schedule is as of June 30, 2026. Every figure is invented to show the method.
Table 1: Hypothetical WIP schedule for Mesa Ridge Builders LLC as of June 30, 2026 (USD, made-up inputs).
| Job | Contract price | Est. total cost | Est. gross profit | Cost to date | % complete | Earned revenue | Billings to date | Over/(under) |
|---|---|---|---|---|---|---|---|---|
| A — Elm Street office build-out | $500,000 | $400,000 | $100,000 | $300,000 | 75.0% | $375,000 | $400,000 | $25,000 |
| B — Riverside warehouse | $750,000 | $650,000 | $100,000 | $130,000 | 20.0% | $150,000 | $120,000 | ($30,000) |
| C — Cedar clinic | $300,000 | $270,000 | $30,000 | $270,000 | 100.0% | $300,000 | $285,000 | ($15,000) |
| D — Depot retail shell | $200,000 | $180,000 | $20,000 | $45,000 | 25.0% | $50,000 | $60,000 | $10,000 |
| Total | $1,750,000 | $1,500,000 | $250,000 | $745,000 | — | $875,000 | $865,000 | ($10,000) |
Walk through Job A: percent complete is $300,000 ÷ $400,000 = 75.0%; earned revenue is 75.0% × $500,000 = $375,000; and over/(under) billing is $400,000 − $375,000 = $25,000 overbilled. The same three steps produce every other row, and the totals cross-foot: estimated gross profit is $1,750,000 − $1,500,000 = $250,000, and total billings of $865,000 minus total earned revenue of $875,000 equals the net $10,000 underbilled position. (No blended percentage is shown in the total row because the jobs are at different stages; a portfolio average would not describe any single contract.)
Interpretation: Mesa Ridge has $35,000 of customer-funded overbillings (Jobs A and D) and $45,000 of underbillings it is financing with its own cash (Jobs B and C). Job C is 100% complete but $15,000 underbilled — a classic closeout profile where the final invoice waits on retainage or punch-list sign-off, and a red flag only if it ages. Job B is early and already $30,000 behind its earned revenue, which usually means a billing-terms or timing problem worth fixing now rather than at year-end.
What happens when the estimate changes?
The schedule punishes stale estimates, which is precisely its value. Staying with the made-up Mesa Ridge numbers: suppose that in July 2026 the project manager revises Job A’s estimated total cost from $400,000 to $500,000 because of concrete and labor overruns, dropping expected profit from $100,000 to zero. The revised percent complete is $300,000 ÷ $500,000 = 60.0%, so revised earned revenue is 60.0% × $500,000 = $300,000. Because $375,000 was already recognized, July books a $75,000 cumulative catch-up reversal — the profit fade appears in the month the estimate moves, not at job completion.
If estimated total cost rose past the contract price — say to $520,000, an expected $20,000 loss — GAAP does not let the loss dribble in. The anticipated-loss guidance that predated ASC 606 remains in effect (ASC 605-35-25-47), and as the Deloitte comparison puts it:
“If an entity estimates that a loss will be incurred, a provision for the loss on the contract is required.” — Deloitte, Key differences between ASC 605-35 and ASC 606
The full $20,000 expected loss would be recognized immediately. This is why monthly estimate review — not annual — is the control that matters.
How do overbillings and underbillings reach the balance sheet?
Per contract, the net position lands as a contract asset (underbilled — the contractor performed first) or a contract liability (overbilled — the customer paid first), under the presentation guidance in ASC 606-10-45-1. Sureties and lenders read these balances skeptically, because both can be gamed by billing practices. The National Association of Surety Bond Producers (NASBP) defines the terms from the underwriter’s side in a 2025 analysis of underbilling (accessed July 28, 2026):
“Underbillings are costs and earned profit in excess of billings.” — National Association of Surety Bond Producers
That NASBP piece reports one surety’s real review in which a contractor’s late-stage underbillings grew from $296,000 to $419,000 as a loss-making job moved from 97% to 99% complete, and the underwriter disallowed them from working capital — one company’s experience, not a typical outcome, but a clear illustration of how underbillings are tested for collectability. Persistent underbillings on profitable, well-run jobs are usually timing; late-stage underbillings on fading jobs are usually trouble. RFS saw the same pattern in an anonymized engagement running contractor payments and a cost-overrun audit, where construction accountants combed through invoices and contracts to categorize the source of the overruns.
Where do book and tax rules diverge?
The WIP schedule is a book (GAAP) and management report. Federal income tax runs a parallel but separate computation, and conflating the two is the most common WIP mistake:
- Tax requires percentage of completion by default. IRC section 460 generally requires the percentage-of-completion method (PCM) for long-term contracts — generally contracts for building, construction, installation, or manufacture of property not completed within the tax year they are entered into — and, per the IRS audit guide, the tax PCM must use the cost-to-cost measure, not engineering estimates. IRS Publication 538 (accessed July 28, 2026) treats long-term-contract methods as special accounting methods governed by section 460 and its regulations.
- Exemptions exist, and the threshold is current. Section 460(e) exempts home construction contracts and small construction contracts — those estimated at signing to be completed within two years by a contractor meeting the gross receipts test of section 448(c). That test, inflation-adjusted, is $32 million of average annual gross receipts for tax years beginning in 2026, per Revenue Procedure 2025-32, section 4.30 (accessed July 28, 2026). The 2009 audit guide still shows the older $10 million figure; the 2017 tax law replaced it with the section 448(c) test, as the statute’s amendment history records. Exempt small contractors may use permitted alternatives such as the completed contract method (CCM), which defers income until completion — deliberately different timing from the GAAP WIP.
- Residential rules changed in 2025. The One Big Beautiful Bill Act (Public Law 119-21, section 70430) amended section 460(e) so that residential construction contracts that are not home construction contracts are tested against a three-year completion period rather than two, applying to contracts entered into in tax years beginning after July 4, 2025, according to the California Franchise Tax Board’s federal-change summary and the statute’s amendment notes (both accessed July 28, 2026).
- Look-back trues up the tax. When a contract closes and final price and cost differ from the estimates used, section 460(b) look-back interest recomputes prior-year tax hypothetically; the audit guide’s Chapter 5 covers the computation and Form 8697 reporting.
- States piggyback unevenly. Most states start from federal taxable income, but conformity to method changes and recent federal amendments varies — confirm the rule in each state where the company files.
The practical takeaway: the same job-cost data feeds all three views — GAAP books, tax return, and management reporting — but the three answers can legitimately differ. Hand the GAAP WIP to a tax preparer as supporting data, not as the tax computation itself, and have a qualified tax professional confirm which method each contract must use.
Monthly WIP review checklist
Run these steps inside the monthly close, before statements go to the surety or lender:
- Tie out cost to date per job to the posted job-cost ledger, including subcontractor accruals and committed-cost review — nothing estimated, nothing unposted.
- Update each estimate to complete with the project manager, and log every revision with a reason; unexplained estimate stability across a troubled job is a finding, not a comfort.
- Recompute percent complete and earned revenue, then book the cumulative catch-up entry per job.
- Review the over/under column job by job: bill up to earned revenue where terms allow, and chase final invoices on completed work (the Job C pattern).
- Flag loss jobs immediately and record the full anticipated loss in the current month.
- Scrub unapproved change orders: include them in contract price only when recovery is enforceable and a significant revenue reversal is not probable — otherwise keep them out until signed.
- Age the underbillings; anything stale gets a collectability answer in writing, because the surety will ask the same question.
- Reconcile the schedule to the general ledger contract-asset and contract-liability control accounts so the WIP, the balance sheet, and the surety package always match.
FAQs
Is a WIP schedule required under US GAAP?
GAAP requires over-time revenue recognition when the ASC 606 criteria are met, and it requires contract assets and liabilities to be presented — but it does not mandate a specific schedule format. The WIP schedule is the standard working schedule contractors use to compute those entries, and sureties and lenders commonly require it by agreement even where GAAP statements are not otherwise needed.
Is tax percentage of completion the same as the book number?
Not necessarily. Tax PCM under IRC section 460 applies its own cost-allocation rules, exempt contracts may use methods such as completed contract, and look-back interest adjusts prior years. A single job-cost dataset can therefore produce a book earned-revenue figure that differs from taxable contract income for the same period.
Is an overbilling extra profit?
No. An overbilling means billings exceed revenue earned to date; it is a contract liability — work the contractor owes the customer — not margin. It improves cash position temporarily and reverses as the remaining work is performed.
Should unapproved change orders be included in contract value?
Conservatively, no. Under ASC 606, variable consideration such as an unpriced or unapproved change order enters the transaction price only to the extent it is probable that a significant revenue reversal will not occur. Many contractors include unapproved change orders only when recovery is enforceable and highly probable, and exclude them otherwise.
The bottom line
Build the WIP schedule monthly: one row per open job, cost-to-cost percent complete, earned revenue against billings, and an over/under column you actually act on — bill up to earned revenue, collect completed jobs, and book loss contracts the month they appear. Keep the GAAP schedule, the management view, and the tax computation distinct but reconciled from the same job-cost data. If your job costing, retainage, or change-order records cannot yet support that, start with construction bookkeeping fundamentals, see how an engagement worked in this contractor cost-overrun case study, or ask RFS to review your contractor WIP and set up the monthly schedule and review with you. Related sector guides live in the industry finance guides hub.
This article provides general educational information, not tax, legal, accounting, or bonding advice. Contract accounting methods, tax exemptions, and surety requirements depend on specific contracts, facts, and federal and state rules that change over time; consult a qualified construction tax professional and your surety or lender before changing any accounting method.