Sample WIP Report
A. Contract Income B. Estimated Costs C. Estimated GP D. Costs to Date E. % Complete F. Profit to Date G. Amount Earned H. Amount Billed I. Cost to Complete J. Overbilling K. Underbilling $76,841.91 Debit/Credit

A. Contract Income

This is the revised estimated revenue for the job, including all approved change orders. It depends on information supplied from project managers. It’s entered directly into the WIP report, or else your construction accounting software will automatically pull it in from your job budget and change orders.

 

A more complex report could possibly include an additional column for projected income, which would include pending or estimate change orders in order to calculate projected over/underbillings.

B. Estimated Costs

Like contract income, estimated costs come from outside of the report and should include all approved change orders to the budget. This will need to be manually entered into a spreadsheet report or else should pull automatically into the report if you use construction accounting software.

C. Estimated GP

Estimated gross profit is calculated by subtracting your estimated costs from your estimated contract revenue (A-B). In this WIP report, this number will be used to calculate the profit to date.

D. Costs to Date

Current costs to date should be supplied by your construction accounting system.

E. % Complete

In this WIP report, the percent complete is calculated by dividing costs to date by estimated costs (D/B). Different companies might have different ways they prefer to look at or compare the percent complete figures of their jobs, and this can include quantities complete or manual completion estimates.

F. Profit to Date

Contractors can calculate current profit differently on variations of a WIP report. In this sample report, costs to date are multiplied by the percent complete (C*E). Other WIP reports might subtract costs to date from amount earned (G-D). Notice that, because of how percent complete is calculated in this report, you get the same profit to date using either method.

G. Amount Earned

The amount earned takes the contract income and multiplies it by the percent complete (A*E). In other words, it represents the amount that “should” be billable.

H. Amount Billed

Like costs to date, the amount billed to date should be supplied by your accounting system.

I. Cost to Complete

This sample WIP report calculates estimated completion costs by subtracting costs to date from estimated costs. However, companies need to ensure that this is accurate to the field conditions. As long as estimate costs account for all relevant change orders — approved, pending or needed — both accounting and project managers should be able to agree on this critical number.

J. Overbilling

The amount of billings in excess of progress is simply the amount earned subtracted from the amount billed (H-G). However, if this is a negative number, there are zero overbillings. Instead, you’ll have a number in the underbillings column.

K. Underbilling

Calculating underbillings is simply the reverse of overbillings. The amount billed is subtracted from the amount earned (G-H). If the number is negative, there are zero underbillings, which in most cases construction financial managers regard as a positive sign for projects.

$76,841.91

The project in this example is underbilled by $76,941.91. In other words, that’s how behind they are on their billings relative to how much progress they should be able to bill for. The question is, “Why?” Why aren’t they billing more in order to free up more operating cash?

 

There are numerous reasons why a job can be underbilled. In this case, they’re billing may be caught up to the actual work completed, but their costs are too high relative to the estimate. That may because they’re missing change orders they need to adjust the cost estimate. Otherwise, they’ll be way underbilled, and that has implications for their income statement.

Debit/Credit

Since the job is underbilled, it looks on paper like it holds the promise of future revenue — revenue that won’t show up on the profit and loss statement (P&L) unless accounting makes an adjusting entry. But accounting wants to make the P&L accurate to the job performance. This is why the example is debiting $76,841.91 to an adjusting liability account and crediting the same amount to an adjusting income account.

The problem comes if the underbillings are really a result of higher costs than the revised estimate indicates. In that case, the $76,841.91 being counted on as revenue isn’t income they’ll ever see. When the IRS sees that income statement, though, it won’t matter whether it’s real or not. They’ll be paying taxes on three-quarters of a million dollars they might avoid with good WIP procedures!