Year-End WIP Schedule FAQ

What is a work-in-progress schedule, and why does it matter?

A work-in-progress (WIP) schedule is a financial tool that helps contractors recognize revenue and costs accurately over the life of a project. It provides a clear snapshot of project performance, cash flow, and financial health at a point in time.

Beyond revenue recognition, the WIP schedule serves as a management tool. It helps contractors identify inefficiencies and cost overruns, assess the necessary changes to cost estimates to complete a job, and track contract value, including whether change orders have been executed and approved. Profitability metrics from the WIP schedule can also serve as performance benchmarks for contract managers, superintendents, and other management personnel.

The WIP schedule is a key accounting exercise and should be compared and reconciled to other accounting data to maintain accurate financial reporting.

How often should contractors prepare a WIP schedule?

Best-in-class contractors prepare WIP schedules at least monthly or quarterly. The year-end WIP schedule requires additional care because it’s subject to increased scrutiny by your CPA. Errors and inconsistencies at year-end can lead to audit delays, increased fees, and missed reporting deadlines. Multiple corrections to the WIP schedule can also lead to unexpected changes to reported revenue and operating results.

What are the four core data inputs that drive WIP schedule calculations?

There are four key data inputs from the accounting system that drive all calculations in the WIP schedule: contract value, costs to date, total estimated costs, and billings to date (including retainage). All four must be accurate and reconciled to the underlying accounting records before the schedule is submitted for audit.

What format should I use when submitting my WIP schedule for audit?

Use Excel or another spreadsheet application rather than a system-generated report or PDF file. A spreadsheet format makes calculations, final edits, and formatting changes easier and more efficient for your CPA, which can keep audit fees to a minimum. If you frequently have jobs that span more than one year, add columns to reconcile year-to-date revenue and costs, as well as job-to-date revenue and costs.

Which jobs should be included in the year-end WIP schedule?

The WIP schedule should include all jobs that had activity during the year. Activity includes labor hours, other job costs, and customer billings. Prior-year closed jobs with no current-year activity should be excluded.

How should I handle change orders when preparing the WIP schedule?

Change orders or other contract changes that are approved as of the balance sheet date should always be included in the WIP schedule. Further judgment is required on whether the contract value should be adjusted for unapproved change orders or other pending contract changes. The general rule is to include only amounts that are likely to be approved or accepted. These assessments can be complicated; if you’re unsure how to approach them, it’s best to discuss them with your CPA in advance.

How do I know when to update my cost estimates?

Cost estimates should be updated whenever scope changes are mandated or change orders are approved to reflect the most accurate picture of expected costs on the job. Two areas warrant particular attention. First, labor estimates: if weather or other delays cause employees to work overtime, the overtime premiums should be incorporated into the cost estimates. Second, changing economic conditions can cause volatility in material prices and other job costs. If your original bid didn’t account for these changes, the job estimates should be closely reviewed and adjusted.

What is the most common method for calculating the percentage of completion?

The most common methodology is to calculate the percentage by comparing costs to date with total estimated costs, referred to as the cost-to-cost method. If a different method is used, such as labor hours or an output-based methodology, it should reflect actual progress on the job.

How does GAAP treat expected losses on jobs?

Generally Accepted Accounting Principles (GAAP) require losses to be fully accrued when expected. The accrual of losses will affect the earned revenue calculated on the job, and the formula for calculating revenue will require adjustment. Your CPA can provide formulas and templates for these calculations.

What should I reconcile before sending the WIP schedule to my CPA?

Before sending the schedule to your CPA or any outside party, three reconciliations should be completed. First, reconcile the prior year job-to-date revenue, costs, and gross profit back to the prior year financial statements issued. Second, reconcile the overbillings and underbillings to the trial balance. Third, reconcile the current-year revenue, costs, and gross profit to the current-year income statement.

What are the warning signs to look for when reviewing the WIP schedule?

Several indicators can signal that a job’s presentation may not be accurate. When reviewing the schedule, contractors should watch for the following:

• Jobs from the prior year that appear on the current year’s schedule as still open
• Jobs showing more than 100% complete or more than 100% billed
• Jobs that are 100% complete but not 100% billed
• Excessive overbillings or underbillings
• Jobs being bid at a loss or breakeven
• Jobs sitting near 100% complete that should be showing as fully complete
• Gross profit that is far above or below what is typical for that type of job
• Gross profit that has significantly gained or faded since the prior year, quarter, or month

If something looks off on a job, what should I review first?

If anything stands out after analyzing the job schedule, there are four areas to review. Start by checking your formulas to rule out a formula error. Then review the contract price to see if it needs to be adjusted for change orders or deductions. Next, review the job-to-date costs incurred to make sure all costs have been appropriately charged to the correct job and that no accrued costs are missing. Finally, review the total estimated costs and estimated costs to complete the job to make sure they reflect the most accurate picture of job costs.

What do auditors look for in a WIP schedule?

Your CPA will have questions about projects with significant year-over-year fluctuations in profitability. Be prepared to discuss the underlying reasons for any profit fade or gain. Material under- or overbillings are not automatic red flags, but they should be explainable; be prepared to discuss the underlying reasons with your CPA.

Auditors recognize the difference between a rushed WIP schedule and one prepared with discipline and intent. Contractors who invest the effort to produce an accurate, well-supported WIP schedule typically experience fewer audit adjustments, fewer surprises, and greater confidence in their year-end results.

Questions about your WIP schedule or year-end audit preparation? KatzAbosch’s construction accounting team has decades of experience working with construction companies. Contact us using the form below.