What is construction work in progress (WIP) and how do you calculate it?
What construction Work in Progress means
In most businesses, accounting is simple. You record revenue when you send a bill and log expenses when you pay vendors. Construction is different. Projects run for months or years, cross accounting periods, and involve many billing cycles. To stay on top of finances, contractors rely on construction work in progress (WIP).
A WIP schedule shows how much work has been completed, how much has been billed, and whether a project is overbilled or underbilled. Without one, contractors risk cash flow problems, inaccurate reports, and less capacity to win new work.
What a WIP schedule includes
A WIP schedule gives a clear view of project status. It usually shows:
Contract value, including approved change orders
Costs spent to date
Estimated cost to finish
Percent complete
Revenue earned so far
Billings to date
Overbilling or underbilling balance
This information helps contractors see if earned revenue matches billing and when adjustments are needed.
How to calculate construction WIP
The most common method is percentage of completion under ASC 606 accounting standards. The formula is:
Revenue earned = (Actual cost to date ÷ Total estimated cost at completion) × Contract value
Then compare revenue to billings:
Billings – Revenue = Adjustment
Positive adjustment = overbilled (liability)
Negative adjustment = underbilled (asset)
This calculation shows the financial health of each project.
Why WIP is important
Accurate WIP schedules help contractors:
Manage cash flow and working capital
Track profitability by project and company
Share reliable data with executives, banks, and sureties
Decide when to take on new projects
Without them, financial reporting becomes guesswork. Producing an accurate WIP schedule is also a best practice recommended by industry groups like the Construction Financial Management Association (CFMA). It allows contractors to better manage cash flow, track profitability, and provide transparency to executives, banks, and sureties.
How RedTeam Flex makes WIP easier
Building a WIP schedule manually is slow and painful. Contractors often pull data from accounting, procurement, and project management into spreadsheets.
RedTeam Flex removes the hassle. It connects project data in real time and creates a complete WIP schedule instantly. It also archives WIP by accounting period, giving contractors accurate reports for executives, lenders, and bonding companies.
With features like percentage of completion revenue recognition, user-defined accounting periods, and WIP archives, RedTeam Flex keeps financial reporting simple and reliable.
