Hartford Construction Accountants CPA: William Brighenti
Certfied Public Accountant, Certified Business Valuation Analyst
Certified QuickBooks ProAdvisor, Sage Master Builder Consultant
How to Prepare a Work-in-Process (WIP) Schedule

46 Mildrum Road, Berlin, CT 06037 Telephone: (860) 828-3269 Email: info@cpa-connecticut.com
Generally accepted accounting principles prescribe the use of the percentage-of-completion method of accounting for long-term construction and manufacturing contracts except when fairly accurate estimates cannot be made to project the percentage of completion of the job (see ARB No. 45 and SOP 81-1). Then the completed-contract method of accounting is the preferred method of accounting for long-term contracts. When the percentage-of-completion is the method of accounting, the accounting principle of full disclosure requires the presentation of a work-in-process schedule in a company's financial statements. This schedule discloses the details of each contract stage of completion and profitability to date as well as in the current period of reporting. Its format varies, but at a minimum should include at least three components:
  1. Contract Values
    • Job name and/or number
    • Contract amount, including change orders
    • Estimated gross profit
  2. Actual Accumulated Contract Totals
    • Earned revenues
    • Cost of revenues
    • Gross profit
    • Estimated costs to complete
    • Billings
      • Billings to date
      • Under billings
      • Over billings
  3. Totals for the Current Year
    • Earned revenues
    • Cost of revenues
    • Gross profit
    • Percent complete on the job

Contract Values
Through 12/31/09
For the Year 12/31/09






Estimated







Contract Estimated Revenues Cost of Gross Cost to Billed to Under Over Revenues Cost of Gross Percent
Job Value Gross Profit Earned Revenues Profit Complete Date Billed Billed Earned Revenues Profit Complete
A 2,400,000 600,000 2,000,000 1,500,000 500,000 300,000 1,800,000 200,000 -    
1,200,000 900,000 300,000 83%
B 1,250,000 250,000 1,000,000 800,000 200,000 200,000 900,000 100,000 -    
900,000 720,000 180,000 80%
C 1,500,000 375,000 1,250,000 937,500 312,500 187,500 1,325,000 -     
75,000 1,250,000 937,500 312,500 83%
D 3,000,000   450,000 1,500,000 1,275,000   225,000
1,275,000 1,450,000   50,000
      -    
1,100,000    935,000   165,000 50%

8,150,000 1,675,000 5,750,000 4,512,500 1,237,500 1,962,500 5,475,000 350,000 75,000
4,450,000
3,492,500   957,500

Often included in the above schedule are several columns showing earned revenues, cost of revenues and gross profit for the prior year. In addition, the addition of a column showing total estimated costs of each job assists the reader of the report in his understanding of the derivation of the estimated values, particularly if the company is employing the cost-to-cost method, wherein the estimate of completion is derived by the ration of costs incurred to date divided by the total estimated contract costs:

Percent Complete = Cost of Revenues To Date / Total Estimated Contract Cost

For example, job's B total estimated costs are $1,000,000. Its percentage of completion = 800,000/1,000,000 or 80%.

The preparation of the schedule involves several: first, calculate the percentage of work completed for each job (if employing the cost-to-cost method, use the formula immediately above); secondly, apply that percentage to the contract amount to determine earned revenues and gross profit per job; thirdly, calculate any over or underbilling for each job. To derive earned revenues and gross profit per job, multiply each contract amount by the percentage completed computed in step one and then subtract total costs to date from the calculated earned revenues:

Contract Amount X Percent Complete = Total Earned Revenues

Total Earned Revenues - Total Cost of Revenues = Gross Profit

Job B's total earned revenues = 1,250,000 X 80% or 1,000,000, and its gross profit = 1,000,000 - 800,000, or 200,000.

Finally to determine the over billing and under billing amounts, subtract billings to date from earned revenues for each contract:

Total Earned Revenues - Total Billings To Date = Under(Over) Billing

As one can see from the formula, if earned revenues exceed billings, the difference will be positive and reflect an under billing; a negative value indicates an over billing.

Job B's over billing = 1,000,000 - 900,000, or 100,000, a positive difference.

The final component of the WIP schedule, the contract results for the current year, can simply be obtained by subtracting the prior year's totals for earned revenues, cost of revenues, and gross profit, from those total values through the end of the current period. Consequently, it is desirable to include the prior year's results in the current year's WIP schedule for the benefit of the reader.

Three additional columns, sometimes found at the end of the schedule, summarize the "backlog" of unfinished work remaining on each contract:  that is, unearned revenues and gross profit as well as costs on those revenues not yet incurred are listed.  Bonding agents and financial readers appreciate this additional information in particular because it conveniently presents the total backlog of committed work on hand at the construction company, assisting them in their estimates of potential revenues, costs, and gross profits for the contractor in the immediate future. Backlog can be derived simply by subtracting total accumulated revenues, costs, and gross profit to-date (i.e., "Through 12/31/09") for each contract from the corresponding contract totals under "Contract Values".  Below is a WIP schedule including three additional columns for the prior year's results, three columns showing the current backlog, and a column for the total estimated cost of the entire contract:

Contract Values Through 12/31/09 Through 12/31/08 As of 12/31/09 For the Year 12/31/09 Backlog as of 12/31/09


Total Estimated


Estimated













Contract Estimated Gross
Revenues Cost of Gross Cost to Billed to Revenues Cost of Gross Under Over Revenues Cost of Gross Percent Revenues Cost of Gross
Job Value Cost Profit Earned Revenues Profit Complete Date Earned Revenues Profit Billed Billed Earned Revenues Profit Complete Earned Revenues Profit
120 2,400,000 1,800,000 600,000 2,000,000 1,500,000 500,000 300,000 1,800,000 800,000 600,000   200,000 200,000 - 1,200,000 900,000 300,000 83% 400,000 300,000 100,000
123 1,250,000 1,000,000 250,000 1,000,000 800,000 200,000 200,000 900,000 100,000   80,000     20,000 100,000 - 900,000 720,000 180,000 80% 250,000 200,000 50,000
124 1,500,000 1,125,000 375,000 1,250,000 937,500 312,500 187,500 1,325,000 - - - - 75,000 1,250,000 937,500 312,500 83% 250,000 187,500 62,500
126 3,000,000 2,550,000 450,000 1,500,000 1,275,000 225,000 1,275,000 1,450,000 400,000 340,000      60,000    50,000        -   
1,100,000    935,000    165,000 50% 1,500,000 1,275,000   225,000

8,150,000 6,475,000 1,675,000 5,750,000 4,512,500 1,237,500 1,962,500 5,475,000 1,300,000 1,020,000    280,000   350,000   75,000 4,450,000 3,492,500    957,500
2,400,000 1,962,500   437,500

Whether or not these other seven columns are presented to an outsider reader is left to the contractor's discretion; however, all of the additional columns should be included in an in-house WIP schedule since they clearly highlight the significant details of all contracts in process to members of management.
ACCOUNTANTS CPA HARTFORD       OUR SERVICES      ABOUT US      CONTACT      ACCOUNTING AND TAX TIPS
HARTFORD CONSTRUCTION ACCOUNTANTS      CALCULATED VALUE METHOD SFAS 123R     IPIC METHOD     CLASSES
ARTICLES      NEW BRITAIN ACCOUNTANTS     BERLIN ACCOUNTING SERVICES     NOT-FOR-PROFIT CPA ACCOUNTANTS KENSINGTON ACCOUNTING SERVICES      NEWINGTON ACCOUNTING & TAX     QUICKBOOKS CONTRACTOR EDITION
CONTRACTOR TAX METHODS OF ACCOUNTING      PERCENTAGE-OF-COMPLETION METHOD     QUICKBOOKS TRAINING
COMPLETED CONTRACTS DEFINED      COMPLETED-CONTRACT METHOD     CONSTRUCTION FADE ANALYSIS
SEP PLANS     WIP SCHEDULES     CONSTRUCTION CONTROLLER     IRS INSTALLMENTS & PENALTY ABATEMENT
HOW TO PREPARE A WIP SCHEDULE     FREE MARKET DATA FOR BUSINESS PLAN     SITEMAP     LOSS ON SALE OF HOME
TEMPORARY ASSIGNMENT TAX DEDUCTIONS     401(K) ROLL OVER FOR BUSINESS STARTUP | ROBS
CASH FLOW ANALYSIS OF CONTRACTS     SHAREHOLDER BASIS IN S CORPORATION     QUALIFIED JOINT VENTURE
UNIFORM CAPITALIZATION RULE     HOME OFFICE CRITERIA     HOW TO FIGURE HOME OFFICE DEDUCTION     BLOG
EMPLOYEE OR INDEPENDENT CONTRACTOR?     HOME BUYER TAX CREDITS     DEDUCT YOUR NEXT CRUISE
HOW TO CALCULATE A TAX OFFER IN COMPROMISE TO THE IRS     PARTIAL PAYMENT INSTALLMENT AGREEMENT
INSTALLMENT AGREEMENTS OR OFFER IN COMPROMISE     2009 NET OPERATING LOSS CARRYBACKS
THE CONTROLLER AND GENGHIS KHAN     ORDINARY AND NECESSARY EXPENSE     NEW KIND OF ACCOUNTING FIRM
ACCOUNTING & TAX ASSISTANCE     QUICKBOOKS MAKE DEPOSITS     QUICKBOOKS CHART OF ACCOUNTS
QUICKBOOKS QUICK TRICK TO RECONCILE PAYROLL BANK ACCOUNT     CHARITABLE CONTRIBUTIONS