---
title: "What is WIP in accounting? | Ledgerbrook"
source: https://ledgerbrook.com/blog/wip-accounting/
description: "WIP in accounting: a contractor's WIP schedule, over- and underbillings, and how it differs from construction in progress."
---

[Blogs](/blog/)

# What is WIP in accounting?

October 12, 2026 · [Omkar Moraye](/about/)

[](https://www.linkedin.com/sharing/share-offsite/?url=https%3A%2F%2Fledgerbrook.com%2Fblog%2Fwip-accounting%2F%3Futm_source%3Dlinkedin%26utm_medium%3Dsocial%26utm_campaign%3Dshare)[](https://x.com/intent/post?url=https%3A%2F%2Fledgerbrook.com%2Fblog%2Fwip-accounting%2F%3Futm_source%3Dx%26utm_medium%3Dsocial%26utm_campaign%3Dshare&text=What%20is%20WIP%20in%20accounting%3F)[](https://www.facebook.com/sharer/sharer.php?u=https%3A%2F%2Fledgerbrook.com%2Fblog%2Fwip-accounting%2F%3Futm_source%3Dfacebook%26utm_medium%3Dsocial%26utm_campaign%3Dshare)[](mailto:?subject=What%20is%20WIP%20in%20accounting%3F&body=What%20is%20WIP%20in%20accounting%3F%0A%0Ahttps%3A%2F%2Fledgerbrook.com%2Fblog%2Fwip-accounting%2F%3Futm_source%3Demail%26utm_medium%3Dsocial%26utm_campaign%3Dshare)

## What is WIP in accounting?

Work in progress (WIP) is the cost of work started but not finished at period end. For a contractor, a WIP schedule compares each open job's costs and billings: a job billed $120,000 with $80,000 earned is overbilled by $40,000, a liability, and an underbilled job is an asset. Construction in progress is a company's own asset under construction.

What is WIP in accounting? For a contractor, WIP (work in progress) is the gap between what each open job has earned and what it has billed, and it is the reason a profit and loss can look healthy in a month the company is quietly running ahead of its work. A contractor who bills $120,000 on a job that has earned $80,000 has $40,000 in the bank that belongs to work not yet done. Until a WIP entry moves it to the balance sheet, that $40,000 sits in revenue.

This post builds a WIP schedule for three jobs, posts the month-end entries from it, shows what to do when a job is heading for a loss, and separates contractor WIP from construction in progress. The two are different accounts, but a search for either one tends to return the other.

## WIP in accounting: three meanings

The term is used in three places, and the accounting is different in each:

| Business | What WIP means | Where it sits |
| --- | --- | --- |
| Contractor | Earned versus billed on open jobs | Over- and underbillings, current balance sheet |
| Manufacturer | Cost of units started but not finished | Inventory, a current asset |
| Any company building its own asset | Cost of a building or equipment not yet in use | Construction in progress, a fixed asset |

Manufacturing WIP gets one paragraph here. A manufacturer’s inventory moves through three accounts: raw materials, work in process, and finished goods. Materials, direct labor, and factory overhead go into WIP as production starts, and the cost of finished units moves out to finished goods. Ending WIP is the cost still sitting in unfinished units at period end, and it is counted and valued as part of inventory:

> **Ending WIP** = Beginning WIP + Manufacturing costs added − Cost of goods manufactured

Our [journal entry for inventory](/blog/journal-entry-for-inventory/) covers how inventory runs through the books.

The rest of this post is about contractors.

## Is WIP an asset or an expense?

Neither kind of WIP is an expense. Manufacturing WIP is inventory, a current asset, until the units are finished and sold. For a contractor, WIP produces two balance sheet accounts: underbillings are a current asset (revenue earned but not yet billed) and overbillings are a current liability (billed for work not yet done). Construction in progress is a fixed asset. Costs reach the profit and loss only as job costs on a contractor’s jobs, as cost of goods sold when inventory is sold, or as depreciation once a finished asset is in service.

## How do you calculate WIP?

A WIP schedule lists every open job at month end and works out, for each one, how much revenue the job has earned so far. Earned revenue comes from costs:

> **Percent complete** = Cost to date ÷ Estimated total cost  
> **Earned revenue** = Percent complete × Contract price  
> **Over- or underbilling** = Billed to date − Earned revenue

This is the cost-to-cost method. It assumes the job earns its revenue as fast as it spends its estimated costs. If billed to date is higher than earned revenue, the job is overbilled. If it is lower, the job is underbilled.

The estimate is what makes the schedule work. A job whose estimated total cost was never updated after a change order or a cost overrun will show the wrong percent complete, and every number to the right of it will be wrong too.

## A worked WIP schedule for three jobs

Three open jobs at October 31. The first two are the jobs from the WIP section of our [bookkeeping for contractors](/blog/bookkeeping-for-contractors/) post.

### The estimate side

| Job | Contract price | Estimated total cost | Estimated gross profit | Cost to date | Percent complete |
| --- | --- | --- | --- | --- | --- |
| Riverside clinic fit-out | 200,000 | 160,000 | 40,000 | 64,000 | 40% |
| Maple Street addition | 140,000 | 112,000 | 28,000 | 56,000 | 50% |
| Warehouse reroof | 90,000 | 75,000 | 15,000 | 60,000 | 80% |
| Total | 430,000 | 347,000 | 83,000 | 180,000 | |

### The billing side

| Job | Earned revenue | Billed to date | Overbilled | Underbilled | Gross profit to date |
| --- | --- | --- | --- | --- | --- |
| Riverside clinic fit-out | 80,000 | 120,000 | 40,000 | | 16,000 |
| Maple Street addition | 70,000 | 50,000 | | 20,000 | 14,000 |
| Warehouse reroof | 72,000 | 70,000 | | 2,000 | 12,000 |
| Total | 222,000 | 240,000 | 40,000 | 22,000 | 42,000 |

Riverside has billed $40,000 ahead of its work, probably a large mobilization draw early in the job. Maple Street is $20,000 behind, which usually means a progress bill is overdue. The reroof is close to even.

Billed to date includes retainage. When retainage is withheld, the full progress bill still posts to revenue and the withheld part goes to `1150 Retainage Receivable`, as in our [QuickBooks Online setup for construction](/blog/quickbooks-online-setup-for-construction/) guide. So the billed column is the gross amount invoiced, not the cash received.

## The month-end WIP entries and the profit and loss

Revenue in QuickBooks is $240,000, the amount billed. The schedule says $222,000 was earned. Two entries close the gap, using the accounts from our [chart of accounts for contractors](/blog/chart-of-accounts-for-contractors/).

Overbillings move out of revenue to a liability:

| Date | Account | Debit | Credit |
| --- | --- | --- | --- |
| Oct 31 | 4010 Contract Revenue - Progress Billings | 40,000.00 | |
| Oct 31 | 2120 Billings in Excess of Costs (Overbillings) | | 40,000.00 |

Underbillings move into revenue from an asset:

| Date | Account | Debit | Credit |
| --- | --- | --- | --- |
| Oct 31 | 1300 Costs in Excess of Billings (Underbillings) | 22,000.00 | |
| Oct 31 | 4010 Contract Revenue - Progress Billings | | 22,000.00 |

After both entries, revenue is $240,000 − $40,000 + $22,000 = $222,000, the earned figure on the schedule, and gross profit is $222,000 − $180,000 = $42,000, the total of the last column.

### Post the overbillings and underbillings gross

The balance sheet shows $40,000 of overbillings and $22,000 of underbillings, not a net $18,000 liability. Under ASC 606, each contract is presented as a contract asset or a contract liability on its own (ASC 606-10-45-1). Netting jobs against each other hides a job that has billed far ahead of its work behind one that is behind. Banks and bonding companies reading a contractor’s statements look at that split.

ASC 606 calls these balances contract assets and contract liabilities. Many contractors keep the older names, costs in excess of billings and billings in excess of costs, in the chart of accounts. They are the same balances.

### Next month: reverse, then post fresh

On November 1, reverse both entries. In QuickBooks Online, open the October 31 journal entry and select **Reverse**; QuickBooks creates the reversing entry dated the first day of the next month. Then post new entries on November 30 from November’s schedule.

Reversing keeps each month’s balances tied to that month’s schedule. The alternative, posting only the change in each balance, works too, but one missed month leaves a balance nobody can trace back to a schedule.

## What happens when a job is heading for a loss?

The schedule above spreads profit over the life of each job. A loss is different. When the estimate shows a job will cost more than its contract price, the whole expected loss is recognized now, not as the work is done. ASC 605-35-25-46 requires a provision for the entire loss on the contract, and the FASB kept that rule when ASC 606 replaced the rest of the old construction guidance.

Say a fourth job has a $50,000 contract, and the estimated total cost is revised from $45,000 to $54,000. Cost to date is $27,000.

| Line | Amount |
| --- | --- |
| Expected loss on the job ($50,000 − $54,000) | (4,000) |
| Percent complete ($27,000 ÷ $54,000) | 50% |
| Earned revenue (50% × $50,000) | 25,000 |
| Loss already in the books ($25,000 − $27,000) | (2,000) |
| Loss still to recognize | (2,000) |

The extra $2,000 goes to a loss provision:

| Date | Account | Debit | Credit |
| --- | --- | --- | --- |
| Oct 31 | Provision for Contract Losses | 2,000.00 | |
| Oct 31 | Accrued Contract Losses | | 2,000.00 |

Our contractor chart does not include these two accounts, because most months nobody needs them. Add them when the first loss job appears: the provision as a Cost of Goods Sold account and the accrual as an Other Current Liability. A job that shows a loss on the schedule is also the first one to look at for costs coded to the wrong job.

## Construction in progress vs. contractor WIP

Construction in progress (CIP) is the cost of an asset a company is building for its own use: a new warehouse, a production line, an office build-out. It is a fixed asset that has not been placed in service yet. Contractor WIP is about jobs built for customers. The two are easy to confuse because both involve a building that is half finished.

| Question | Contractor WIP | Construction in progress |
| --- | --- | --- |
| Who owns the finished work | The customer | The company itself |
| Where it sits | Current assets and liabilities (1300, 2120) | Fixed assets |
| Does it touch revenue | Yes, it adjusts earned revenue | No, the costs stay on the balance sheet |
| When it ends | When the job is finished and billed | When the asset is placed in service |

### Construction in progress accounting

Costs of building the asset go to a construction in progress account as they are paid: materials, contractor bills, permits, and the labor of the company’s own crew if it does the work. Nothing is depreciated while the asset is being built. IRS Publication 946 says depreciation begins when property is placed in service, meaning ready and available for its use.

When the asset is finished, a journal entry moves the full cost out of construction in progress and into the fixed asset account it belongs to, such as Buildings, and depreciation starts from the placed-in-service date. Interest on money borrowed to build it may have to be added to its cost instead of expensed: ASC 835-20 sets the rule for GAAP statements, and IRC §263A(f) sets a separate one for tax. Ask your CPA which applies before the first interest payment is coded.

### Construction in progress journal entries

A company builds a $600,000 warehouse on land it already owns. The builder bills $250,000 on March 31 and the final $350,000 on June 30, and the warehouse is ready for use on July 1.

| Date | Account | Debit | Credit |
| --- | --- | --- | --- |
| Mar 31 | Construction in Progress | 250,000.00 | |
| Mar 31 | Accounts Payable | | 250,000.00 |
| Jun 30 | Construction in Progress | 350,000.00 | |
| Jun 30 | Accounts Payable | | 350,000.00 |
| Jul 1 | Buildings | 600,000.00 | |
| Jul 1 | Construction in Progress | | 600,000.00 |

Construction in Progress is back to zero, Buildings holds the $600,000, and depreciation starts in July. Land stays in its own account and is never depreciated; Publication 946 says land cannot be depreciated, so the cost of the land never goes through construction in progress.

What goes in, and what stays out:

| Capitalize to construction in progress | Expense as it happens |
| --- | --- |
| Builder and subcontractor bills | General office and administrative costs |
| Materials and the company’s own crew’s labor on the build | Repairs and maintenance after the asset is in service |
| Architect, engineering, and permit fees | Training staff to use the finished asset |

In QuickBooks Online, create Construction in Progress with the **Fixed Assets** account type and the detail type closest to the finished asset. Outside Advanced, QuickBooks Online does not depreciate assets on its own, so the rule in practice is simple: post no depreciation entries against it. In QuickBooks Online Advanced, which has a fixed assets feature, wait until the asset is finished before adding it there.

A contractor that builds its own shop is doing both at once. The crew’s time and materials on the shop go to construction in progress, not to job cost and not to a customer’s WIP line.

## What QuickBooks Online can and cannot do for WIP

QuickBooks Online Plus and Advanced get you the inputs to a WIP schedule. They do not produce the schedule itself.

| Task | QuickBooks Online |
| --- | --- |
| Cost to date by job | Yes, if every cost is tagged to a project (Plus and Advanced) |
| Billed to date by job | Yes, from invoices and progress invoicing on each project |
| Estimated costs against actuals | Project cost estimates and an Estimates vs. actuals report, in Advanced and Intuit Enterprise Suite |
| Revised estimated total cost | No, you keep it outside QuickBooks |
| Percent complete, earned revenue, over- and underbillings | No |
| Posting the WIP entries | Yes, as journal entries |

Intuit Enterprise Suite, the tier above Advanced, adds project reports that include one named Work in progress and one named Cost to complete by project. Intuit describes the Work in progress report as comparing spending to date with the estimate; it does not say the report calculates overbillings or underbillings, so check its columns before using it in place of a schedule.

On Plus or Advanced, the usual setup is a spreadsheet with one row per open job. Each month, pull cost to date and billed to date per project from QuickBooks into it, update the estimated total cost from the project manager’s latest numbers, and let the formulas produce the over- and underbillings. Post the two totals as journal entries, then keep the spreadsheet as the support for them.

Two things in QuickBooks decide whether the spreadsheet is right. Every cost has to be tagged to a project, because an untagged cost is missing from cost to date and makes the job look less complete than it is. And every invoice has to be on the right project, because billed to date comes from there.

For tax, a contractor’s long-term contracts may be reported on a different method from the GAAP schedule above. IRC §460 and its exceptions are covered in our [bookkeeping for contractors](/blog/bookkeeping-for-contractors/) post. The WIP schedule is still needed for the financial statements whichever tax method your CPA uses.

## Who keeps the WIP schedule current

A WIP schedule is only as good as the estimates in it, and the estimates live with the people running the jobs. The bookkeeping side is pulling the cost and billing numbers, posting the entries, and asking why a job’s percent complete jumped or its margin faded since last month. That is part of month-end close in our [monthly bookkeeping](/monthly-bookkeeping/) for contractors.

If the jobs were never tagged in QuickBooks, there is nothing to build a schedule from. Untagged costs have to be assigned to projects first, month by month, which is [cleanup](/quickbooks-cleanup/) work:

$99per month of backlog20% off 6+ months

> **When to hand this off:** if your bank or bonding company has asked for a WIP schedule and cost to date by job cannot be pulled from QuickBooks, the jobs need tagging before any schedule is worth handing over. A [free file review](/contact/?from=blog%2Fwip-accounting) shows how much of the job costing is missing.

Ledgerbrook

Behind on your QuickBooks books?

Cleanup or catch-up

$99 per month of backlog, 20% off 6+ months

Turnaround

5 business days for a typical year

Monthly close

From $99 a client file a month

[Get a free file review](/contact/?from=blog%2Fwip-accounting)

Free, no card. A written answer within about 48 hours.

[See every price](/pricing/)

Certified

- [![Intuit QuickBooks Certification Level 1](/_astro/level-1.BokmyvzE_Z2cyGo6.webp)](https://www.credly.com/badges/7ceaf1c4-83da-4a1b-b19f-7e15cb5c0ac7/public_url "Intuit QuickBooks Certification Level 1. Verify on Credly.")
- [![Intuit QuickBooks Certification Level 2](/_astro/level-2.D-GWLUNI_Z1Sh5RD.webp)](https://www.credly.com/badges/02426568-00bb-46e1-a939-9063497c54d6/public_url "Intuit QuickBooks Certification Level 2. Verify on Credly.")
- [![Intuit Bookkeeping Certification](/_astro/bookkeeping.C82JE0Dn_Z1YzPBj.webp)](https://www.credly.com/badges/30b70ae2-e369-4a8b-9fee-d6db3a47b70c/public_url "Intuit Bookkeeping Certification. Verify on Credly.")
- [![QuickBooks Online Payroll Certification](/_astro/payroll.r5Yo2XnL_VxspM.webp)](https://www.credly.com/badges/2fc8fb7d-90d1-43ba-961b-aff161fe8491/public_url "QuickBooks Online Payroll Certification. Verify on Credly.")

Issued by Intuit, verified by Credly.

Published October 12, 2026

Share this post[](https://www.linkedin.com/sharing/share-offsite/?url=https%3A%2F%2Fledgerbrook.com%2Fblog%2Fwip-accounting%2F%3Futm_source%3Dlinkedin%26utm_medium%3Dsocial%26utm_campaign%3Dshare)[](https://x.com/intent/post?url=https%3A%2F%2Fledgerbrook.com%2Fblog%2Fwip-accounting%2F%3Futm_source%3Dx%26utm_medium%3Dsocial%26utm_campaign%3Dshare&text=What%20is%20WIP%20in%20accounting%3F)[](https://www.facebook.com/sharer/sharer.php?u=https%3A%2F%2Fledgerbrook.com%2Fblog%2Fwip-accounting%2F%3Futm_source%3Dfacebook%26utm_medium%3Dsocial%26utm_campaign%3Dshare)[](mailto:?subject=What%20is%20WIP%20in%20accounting%3F&body=What%20is%20WIP%20in%20accounting%3F%0A%0Ahttps%3A%2F%2Fledgerbrook.com%2Fblog%2Fwip-accounting%2F%3Futm_source%3Demail%26utm_medium%3Dsocial%26utm_campaign%3Dshare)

Continue Reading[All blogs →](/blog/)

[

 Previous BlogOctober 12, 2026

### How to record a chargeback in accounting

Chargeback accounting: the entries for a card dispute opened, lost and won, and how to record each one in QuickBooks Online.

Read previous post →

](/blog/chargeback-accounting/)