Do contractors need to track work-in-progress on their books?
Yes. If your projects last more than a month or involve significant dollar amounts, tracking work-in-progress is one of the most important things you can do for your financial accuracy. WIP tracking compares the costs you’ve incurred on a job to the revenue you’ve billed at any given point. Without it, your financial statements can paint a picture that’s completely disconnected from reality.
Here’s a simple example. You’re a general contractor halfway through a $500,000 remodel. You’ve spent $180,000 in materials and labor, but you’ve billed $250,000 because your draw schedule is front-loaded. On paper that job looks incredibly profitable right now. But the heavy cost phases haven’t hit yet. WIP tracking shows you the true position by comparing how far along the work actually is to how much you’ve billed and collected.
From a tax perspective, contractors with average annual gross receipts over $29 million are required to use the percentage-of-completion method for long-term contracts. That method requires WIP tracking. Smaller contractors can often use the completed contract method, which delays revenue recognition until the job wraps up. But even if you’re not required to use percentage-of-completion, WIP gives you financial statements that reflect what’s actually happening in your business rather than what the billing schedule happens to show.
The real value is catching overbilling and underbilling before they become problems. Overbilling means you’ve billed more than the work completed to date justifies. That cash in your bank account feels great until you realize you’ve already spent it and still have months of work to finish. Underbilling means you’ve completed more work than you’ve invoiced for, creating cash flow gaps that can stall your whole operation. Both situations are invisible without a WIP schedule.
A proper WIP schedule looks at three things for each active job. The total contract amount, your total estimated costs, and costs incurred to date. From those numbers you can calculate how far along each project really is and whether you’re billing ahead of or behind the work completed. Running this monthly gives you a clear view of your true financial position across all active projects.
Most contractors who haven’t tracked WIP before are surprised by what it reveals. Jobs they assumed were profitable were actually breaking even. Cash they thought was profit turned out to be overbilling that would get eaten up as projects wrapped up. These aren’t hypothetical scenarios. They happen constantly in construction because the timing of billings and costs rarely lines up neatly.
WIP tracking and construction job costing go hand in hand. You can’t build a useful WIP schedule without accurate cost data by job, and job cost data without WIP context can be misleading. Getting both right gives you the full picture of profitability by project.
If your jobs typically finish within a couple weeks and involve smaller amounts, WIP may be less critical. But for any contractor running projects over $50,000 or lasting more than a month, it should be part of your regular financial process. A small business accounting firm with construction experience can set up WIP reporting and maintain it monthly so you always know where each project actually stands financially, not just where your bank balance says you are.
Bookkeeping for East Valley Small Businesses
The Next Step:
Tell Us About Your Business
Let us know where things stand with your books and what kind of help you're looking for. We'll give you an honest assessment and a clear price.
More Questions
How far behind on my books is too far behind?
There's no point where it's too late to catch up, but the longer you wait, the harder and more expensive it gets. A few months behind is common. A year or more behind starts creating real tax and financial problems.
Read answerHow do I connect my bank accounts to QuickBooks Online?
Go to Banking, click Link Account, search for your bank, and enter your online banking credentials. The connection itself takes minutes, but getting your chart of accounts right beforehand is what actually matters.
Read answerHow should a salon or barbershop track income and expenses?
Separate service revenue from product sales and booth rental income. Use a POS system that feeds into QuickBooks, track cash and tips daily, and categorize expenses by type so you can see where your money actually goes.
Read answerCan my bookkeeper help me prepare for a business audit?
Yes. A good bookkeeper keeps your records organized, accounts reconciled, and documentation accessible, which is the foundation of a smooth audit. The real preparation happens throughout the year with accurate, consistent bookkeeping.
Read answerHow do I set up QuickBooks Online for my business?
Start by choosing the right plan, then focus on your chart of accounts, bank connections, and opening balances. These three areas determine whether QBO actually gives you useful financial data or just creates a mess you'll need to clean up later.
Read answerWhat does a bookkeeper actually do for a small business?
A bookkeeper keeps your financial records accurate and current. That means categorizing transactions, reconciling bank accounts, and producing reports that tell you how your business is actually performing.
Read answer
