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A construction WIP schedule is a monthly or quarterly report that lists every open contract with its price, estimated total cost, cost to date, percent complete, revenue earned and amount billed. The gap between revenue earned and amount billed tells you whether each job is over billed or under billed, and that gap is the number banks, sureties and auditors check first.
This guide shows how to build a construction WIP schedule, how over and under billings map to contract assets and liabilities under ASC 606, where retainage belongs, how to book a loss job, and how Section 460 tax rules (including the $32 million small contractor test for 2026) differ from the book numbers, with a three-job worked example.
Each row on the schedule is one contract. The standard columns are:
| Column | What it holds |
|---|---|
| Contract price | Original contract plus approved change orders |
| Estimated total cost | Cost to date plus the project manager's current estimate to complete |
| Estimated gross profit | Contract price minus estimated total cost |
| Cost to date | Job costs posted through the period end |
| Percent complete | Cost to date divided by estimated total cost |
| Revenue earned | Contract price times percent complete |
| Billed to date | Every progress billing issued, including retainage withheld |
| Over or under billed | Revenue earned minus billed to date |
| Cost to complete and backlog | Remaining cost and remaining unearned revenue |
The schedule only works if job costs are coded to the right contract every month. If costs sit in a suspense account or land on the wrong job, every percent complete figure on the schedule shifts. Contractors who struggle here usually fix cost capture first, often with construction project cost tracking software that pushes field costs to the ledger by job and cost code.
Labor is often the late column on prevailing wage jobs. Teams that file WH-347 certified payroll for Davis-Bacon jobs should post the same labor to the job ledger before the WIP cutoff.
ASC 606 replaced the old percentage-of-completion guidance for book purposes, but most construction contracts still recognize revenue over time. Paragraph 606-10-25-27 lists three criteria, and the one that usually applies to building work is that "the entity's performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced" (FASB ASU 2014-09).
Once revenue is recognized over time, the contractor picks a method to measure progress. Cost-to-cost is the common choice, and the standard allows it as an input method based on "costs incurred" relative to total expected inputs (606-10-55-20). The same guidance warns that inputs can overstate progress. Under 606-10-55-21, a contractor should exclude costs "attributable to significant inefficiencies in the entity's performance that were not reflected in the price of the contract," such as unexpected wasted materials or labor.
Uninstalled materials raise the same issue. If a contractor buys $200,000 of switchgear that will not be installed for months, counting that cost as progress would pull revenue and margin forward before the installation work is done. ASU 2014-09 Example 19 covers this case with elevators delivered to the site well before installation. The contractor excludes the elevator cost from its measure of progress and recognizes revenue on the elevators "in an amount equal to the costs to procure the elevators (that is, at a zero margin)." On the WIP schedule this means showing qualifying uninstalled materials on a separate line and leaving them out of the percent complete calculation.
The over or under billing column is where the WIP schedule meets the balance sheet.
Under billed (costs and estimated earnings in excess of billings). Revenue earned is higher than billings. The contractor has done work it has not yet invoiced. Under ASC 606 this is a contract asset. Paragraph 606-10-45-3 defines a contract asset as "an entity's right to consideration in exchange for goods or services that the entity has transferred to a customer."
Over billed (billings in excess of costs and estimated earnings). Billings are higher than revenue earned. The customer has paid, or owes, for work not yet done. Under 606-10-45-2 this is a contract liability, "an entity's obligation to transfer goods or services to a customer for which the entity has received consideration (or an amount of consideration is due)."
Paragraph 606-10-45-1 requires each contract to be presented "as a contract asset or a contract liability," so each job lands on one side or the other. Large under billings can mean slow billing or an estimate to complete that is too low, which inflates percent complete. Over billings often reflect front-loaded billing, which helps cash but leaves a liability for work still to be done. Sureties and lenders read both columns together with working capital management, because over billings sit in current liabilities and reduce working capital, and under billings add to current assets that have not yet been invoiced.
Retainage is the part of each progress billing the owner holds back until completion or another contract milestone. On federal fixed-price construction work, the Federal Acquisition Regulation caps it: "The amount of retainage withheld shall not exceed 10 percent of the approved estimated amount" (FAR 32.103). Private contracts and state prompt payment laws set their own terms, so the contract governs.
On the WIP schedule, billed to date should include retainage, because retainage is part of the amount billed. The difference shows up on the balance sheet. ASC 606 separates contract assets from receivables, and 606-10-45-4 says a right to consideration "is unconditional if only the passage of time is required before payment of that consideration is due." Retainage that depends only on the passage of time is a receivable. Retainage that depends on further performance, such as completion or punch list sign-off, is conditional and is usually presented as a contract asset. Keep a retainage ledger by job and release date so the balance can be classified correctly and forecast for cash.
When the estimated total cost rises above the contract price, the contract becomes a loss job. ASC 606 did not change the rule for loss provisions on construction contracts. It points contractors back to the older guidance: "For guidance on determining the need for a provision for losses for construction-type and production-type contracts, see Subtopic 605-35" (606-10-60-9, FASB ASU 2014-09). Under that guidance, the full expected loss on a contract is generally recognized as soon as current estimates indicate it. Confirm contract-specific treatment with the reviewing CPA.
Profit fade is the softer version of the same problem: estimated gross profit shrinks from one WIP schedule to the next. Tracking each job's estimated margin over time, and asking the project manager to explain every movement over a set threshold, is one of the most useful reviews an owner or fractional CFO for construction companies can run each month.
A contractor closes its books at 30 September 2026 with three open jobs. Each billing includes 10% retainage. Job C was bid at an estimated cost of $810,000 (10% margin), but the project manager now expects $950,000.
| Job | Contract price | Est. total cost | Cost to date | % complete | Revenue earned | Billed to date | Over (-) / under (+) billed |
|---|---|---|---|---|---|---|---|
| A | $2,400,000 | $2,000,000 | $1,300,000 | 65% | $1,560,000 | $1,450,000 | +$110,000 |
| B | $1,500,000 | $1,275,000 | $510,000 | 40% | $600,000 | $720,000 | -$120,000 |
| C | $900,000 | $950,000 | $570,000 | 60% | $540,000 | $540,000 | $0 |
The arithmetic for each row:
Summary for the period:
| Item | Amount |
|---|---|
| Under billings (contract asset, Job A) | $110,000 |
| Over billings (contract liability, Job B) | $120,000 |
| Net over billed position | $10,000 |
| Gross profit recognized to date (A $260,000 + B $90,000 - C $30,000 - C provision $20,000) | $300,000 |
| Retainage held (10% of billings: A $145,000, B $72,000, C $54,000) | $271,000 |
| Cost to complete (A $700,000, B $765,000, C $380,000) | $1,845,000 |
| Backlog of unearned revenue (A $840,000, B $900,000, C $360,000) | $2,100,000 |
Two reviews follow from this schedule. Job A's under billing should be invoiced on the next pay application if the contract allows it. Job C's revised estimate needs written support from the project manager, because a $140,000 swing on a $900,000 job will draw questions from the surety and from the auditor. The construction industry audit challenges that come up most often are estimate support and cost cutoff, and both show up first on the WIP schedule.
The book WIP schedule follows ASC 606. Federal income tax on long-term contracts follows Section 460, and the two can produce different revenue in the same year.
The general tax rule is that "the taxable income from such contract shall be determined under the percentage of completion method" (26 U.S.C. 460), with percent complete measured "by comparing costs" incurred to estimated total contract costs.
Small contractors have an exemption. Section 460(e)(1)(B) excludes construction contracts that the taxpayer expects to complete within two years of the contract commencement date, if the taxpayer meets the gross receipts test of Section 448(c) for the year the contract is entered into. For tax years beginning in 2026, Rev. Proc. 2025-32 sets that test at average annual gross receipts for the prior three years that "does not exceed $32,000,000" (IRS Internal Revenue Bulletin 2025-45). Related businesses are combined: under Section 448(c)(2), "All persons treated as a single employer under subsection (a) or (b) of section 52" and certain related groups "shall be treated as one person" for the test (26 U.S.C. 448). A contractor that qualifies can use an exempt method such as completed-contract for tax, even while its reviewed or audited statements use ASC 606 over-time revenue.
The One Big Beautiful Bill Act widened the residential exemption. Section 460(e)(1)(A) now exempts "any residential construction contract," and the statutory note states the change applies "to contracts entered into in taxable years beginning after July 4, 2025." Before the change, the full exemption covered home construction contracts, which are limited to buildings with four or fewer dwelling units. Residential contracts that are not home construction contracts and fail a three-year version of the completion test fall under Section 263A cost capitalization. Developers who build for their own account should read the separate guide on real estate development accounting, which covers capitalized interest and Section 460 from the owner's side.
Because book and tax revenue diverge, the tax preparer needs a second WIP schedule, or a reconciliation column, with tax percent complete and the exempt-method contracts flagged. The broader choice between book bases is covered in GAAP vs tax basis for construction.
The monthly process:
Lenders and sureties usually ask for the WIP schedule alongside year-end statements, and the level of assurance they require (an audit, review or compilation) affects how much support each estimate needs. Contractors without an in-house controller often hand the monthly cycle to a team that provides outsourced accounting for construction companies, with the owner and project managers keeping responsibility for the estimates.
What is a WIP schedule in construction? A construction WIP schedule is a report listing every open contract with its price, estimated total cost, cost to date, percent complete, revenue earned, billings and the resulting over or under billing. Many contractors prepare it monthly.
How do you calculate over and under billings? Divide cost to date by estimated total cost to get percent complete, multiply by the contract price to get revenue earned, then subtract billed to date. A positive result is an under billing (contract asset). A negative result is an over billing (contract liability).
Is retainage included in billings on a WIP schedule? Yes. Billed to date should include the gross amount invoiced, retainage included. Retainage is then tracked in its own ledger and classified on the balance sheet as a receivable or contract asset, depending on whether payment depends only on time or on further performance.
Does a small contractor have to use percentage-of-completion for taxes? Not always. For 2026, a contractor whose average annual gross receipts for the prior three years do not exceed $32,000,000, and who expects to finish the contract within two years, can use an exempt method under Section 460(e). Residential construction contracts entered into in tax years beginning after July 4, 2025 also have a wider exemption.
How is a loss job shown on the WIP schedule? The full expected loss is generally recognized once the estimates show it. If percent complete accounting has booked only part of the loss, a loss provision records the rest in the same period.
Madras Accountancy provides outsourced bookkeeping, accounting and tax preparation support for US CPA firms and their contractor clients, including job cost close, monthly WIP schedule preparation and year-end workpapers for review by the client's CPA. To discuss your construction clients, contact our team.
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