To calculate WIP in construction, you run four steps on each active job. Add the project manager's cost-to-complete to costs to date to get the estimated cost at completion (EAC). Divide costs to date by EAC to get percent complete. Multiply percent complete by the contract value to get earned revenue. Then subtract earned revenue from billings to date to get the over- or under-billing position — a positive number is overbilled (a current liability), a negative number is underbilled (a current asset). That chain is the whole calculation, and it is the math behind every row of a construction WIP schedule.
You already know what a WIP schedule is — the report your surety, your bank, and your CPA read every month. This post is the layer underneath it: the exact arithmetic that builds each number, with a full worked example you can recompute, the balance-sheet placement, and the adjusting journal entry that books it. The formulas come straight from the cost-to-cost percentage-of-completion method under ASC 606 — the basis "well over 90% of companies in construction have been using" (Foundation Software).
What goes into the WIP calculation? (The four inputs)
A WIP calculation needs exactly four inputs per job: contract value, costs to date, the cost-to-complete, and billings to date. Three of them are facts; one is a forecast. Contract value (original contract plus approved change orders), costs to date (the posted job-cost ledger), and billings to date (what you have invoiced the owner) are objective numbers that already live in your project accounting system. The cost-to-complete — the estimate to complete, or ETC — is the only subjective input. It is the project manager's judgment of what it will cost to finish the remaining work, and it does not exist anywhere until someone enters it.
That single forecast is the input that drives the entire chain. It sets the estimated cost at completion (EAC = costs to date + ETC), and the EAC is the denominator for percent complete, earned revenue, and projected margin. Change the ETC by $100,000 and every downstream number on the row moves. This is also the distinction worth getting precise — the difference between EAC and ETC is the estimate that drives the whole calculation, so it is worth keeping the two terms straight.
For general contractors, the three objective inputs come from the project system of record — contract value, costs, and billings all live there, posted as the job runs. The ETC does not. There is no system field that produces a cost-to-complete, because no system knows what it will take to finish a job. A human who knows the work does. That split — three facts and one forecast — is the reason the WIP calculation is simple but the WIP close is not.
How do you calculate WIP in construction? (The four-step formula chain)
WIP is calculated in four steps, in order. Each step feeds the next, and you run the chain once per active job:
| Step | Formula | Plain-English meaning |
|---|---|---|
| 1. EAC | Costs to Date + Cost-to-Complete | The total you now expect to spend on the job. |
| 2. Percent complete | Costs to Date ÷ EAC | How far along the job is, measured in money spent. |
| 3. Earned revenue | Percent Complete × Contract Value | The revenue you have actually earned, regardless of what you have billed. |
| 4. Over/(under) billing | Billed to Date − Earned Revenue | Positive = overbilled (a liability); negative = underbilled (an asset). |
Step 2 is the heart of it, and it uses the cost-to-cost method deliberately. Percent complete is measured by cost incurred against the full expected cost, not by a project manager's eyeball estimate of how "done" a job looks. Cost-to-cost is an objective input measure; the alternative — a subjective judgment of percent done — is "less precise and more prone to error" (Foundation Software). The rule of thumb a CPA will state it as: "if you have incurred 40% of a project's expected costs, you recognize 40% of the contract value as revenue" (SaltMarsh Advisors).
There is one dependency hidden in that objectivity. Cost-to-cost only produces accurate calculations "if estimates are kept current," and that ongoing estimate is the ETC entered each cycle (Foundation Software). The formula is objective; the denominator it runs on is only as good as the latest cost-to-complete.
This is the math ASC 606 codified for over-time revenue recognition — the revenue-recognition standard behind the formula. (For contractors subject to the separate IRS percentage-of-completion requirement under IRC §460, the small-contractor exception is inflation-indexed — that is a tax rule distinct from GAAP, and the linked guide carries the current figure (IRC §460, Cornell Law). The binding drivers of POC for most mid-market GCs are surety, lender, and GAAP expectations, not the IRS threshold.)
Worked example — Riverside Medical Center
Run the chain on a real-looking job and the result is concrete: Riverside Medical Center, a project of the fictional general contractor Meridian Construction Group, is overbilled by $336,000. The project manager submits a $4,950,000 cost-to-complete against $7,900,000 in costs to date; every other number on the row follows from the four formulas above. Here is the full arithmetic, step by step:
| Input / calculation | Value |
|---|---|
| Contract value | $14,250,000 |
| Costs to date | $7,900,000 |
| Cost-to-complete (ETC, PM-entered) | $4,950,000 |
| EAC = $7,900,000 + $4,950,000 | $12,850,000 |
| Percent complete = $7,900,000 ÷ $12,850,000 | 61.5% |
| Earned revenue = 61.5% × $14,250,000 | $8,764,000 |
| Billed to date | $9,100,000 |
| Over/(under) billing = $9,100,000 − $8,764,000 | $336,000 overbilled |
| Projected gross margin = ($14,250,000 − $12,850,000) ÷ $14,250,000 | 9.8% |
The figures round to the nearest thousand, the way they sit on a real schedule: percent complete is 61.4786% (shown as 61.5%), and 61.5% × $14,250,000 is $8,763,750 (shown as $8,764,000), so the overbilling reads as $336,000. A WIP carries whole-thousand figures; the cents don't change the decision.
Read the result the way an auditor reads it. Riverside has invoiced the owner $9,100,000 but earned only $8,764,000 of revenue to date. The $336,000 gap is not free margin and it is not income — it is money collected ahead of the work, which sits on the balance sheet as a current liability (billings in excess of costs) until the work catches up to the invoice. The job is also tracking to a 9.8% projected gross margin, which the WIP recalculates from the current EAC every cycle, so any climb in the ETC shows up here as profit fade before close.
One number in that table is unlike the others. Contract value, costs to date, and billed to date are all pulled straight from the project system. The $4,950,000 cost-to-complete is the one figure no system produced — it is Meridian's PM forecasting what it will take to finish Riverside. Everything below it in the table is arithmetic; that one line is judgment.
Is WIP an asset or a liability on the balance sheet?
It depends on the billing position the calculation produces. An overbilled project — where you have invoiced more than you have earned — is a current liability, recorded as "billings in excess of costs." An underbilled project — where you have earned more than you have invoiced — is a current asset, recorded as "costs in excess of billings" (Foundation Software). These are the two WIP line items your CPA carries on the balance sheet under ASC 606, and Step 4 of the formula chain is what decides which one a job lands in.
The over/(under) billing column is the one auditors and CPAs translate into balance-sheet language, project by project. A surety underwriter and a construction CPA both read "billings in excess of costs" and "costs in excess of billings" on sight — so the WIP schedule has to label each job's position in those exact terms, not paraphrase them.
What is the WIP journal entry? (The adjusting entry)
The WIP adjustment is a period-end accrual that books the over- or under-billing position to the correct balance-sheet account, offset against revenue for the period (thewipreport). State the rule before the entry: because percentage-of-completion recognizes the full contract price across the life of the job, the adjustment shifts only when revenue is recognized between periods. It does not change the total contract revenue earned. It moves the gap between what a job billed and what it earned to the right line — nothing more.
Here is the entry in both directions, assuming period revenue was first recorded at amounts billed:
OVERBILLED (Riverside Medical Center):
Billed $9,100,000, earned $8,764,000 → $336,000 overbilled
DR Revenue $336,000 [income statement — reduces over-recognized revenue]
CR Billings in Excess of Costs $336,000 [current liability — increases]
UNDERBILLED (illustrative job):
Earned $400,000, billed $300,000 → $100,000 underbilled
DR Costs in Excess of Billings $100,000 [current asset — increases]
CR Revenue $100,000 [income statement — increases under-recognized revenue]
For Riverside, the overbilled entry takes the $336,000 of revenue recognized ahead of work performed and parks it on the balance sheet as a current liability, where it stays until the invoices and the work line up. The underbilled mirror — shown on a separate illustrative job, not Riverside — does the reverse: it records earned-but-unbilled revenue as a current asset and lifts recognized revenue to match. In both cases the total contract revenue is unchanged; only the timing and the balance-sheet placement move.
That is the entry itself. When the schedule and the general ledger refuse to agree at all — costs that won't foot, revenue that won't match — the problem is reconciliation, not the entry, and it has four recurring structural causes. We walk those in full in why your WIP never ties out.
The one number the system cannot calculate
Every input to the WIP calculation except one is a system fact. Contract value, costs to date, and billings to date all come from the project accounting system, already posted, already auditable. The cost-to-complete is the only figure a system cannot produce, because finishing a job is a forecast, not a record. It is the project manager's estimate of what the remaining work will cost, and it has to be entered and updated every close cycle.
This is why the cost-to-complete deserves more scrutiny than its single cell suggests. It is a judgment call, not a calculation, and it sets the EAC that drives the entire row. An optimistic ETC understates the EAC, overstates percent complete, and can make a troubled job look healthy — exactly the kind of distortion a surety underwriter is trained to challenge. The math is only as honest as the forecast feeding it. That is not a flaw in the method; it is the reason the method requires a named person to own the number, so an auditor can see whose judgment is behind the revenue.
Frequently asked questions
How do you calculate WIP in construction? Four steps: (1) EAC = costs to date + the PM's cost-to-complete; (2) percent complete = costs to date ÷ EAC; (3) earned revenue = percent complete × contract value; (4) over/(under) billing = billed to date − earned revenue. A positive result is a current liability (overbilled); a negative result is a current asset (underbilled). (Foundation Software; ASC 606)
What is the WIP journal entry? For an overbilled project, debit Revenue and credit Billings in Excess of Costs (a current liability). For an underbilled project, debit Costs in Excess of Billings (a current asset) and credit Revenue. The entry moves the billing-timing difference to the correct balance-sheet account; over the life of the job it changes only when revenue is recognized, not the total earned. (thewipreport)
Is WIP an asset or a liability in construction? It depends on the billing position. An underbilled project (earned more than billed) is a current asset — costs in excess of billings. An overbilled project (billed more than earned) is a current liability — billings in excess of costs. Both positions are computed on the WIP schedule under the percentage-of-completion method. (Foundation Software; ASC 606)
What is the percentage-of-completion formula for WIP? Percent complete equals costs to date divided by the estimated cost at completion (EAC), where EAC is costs to date plus the project manager's cost-to-complete. Earned revenue equals percent complete times contract value. This is the cost-to-cost basis used by well over 90% of construction companies. (Foundation Software)
What does overbilled mean on a WIP schedule? Overbilled means the project has invoiced the owner more than the revenue it has earned to date. The excess is recorded as a current liability (billings in excess of costs) on the balance sheet, not recognized as income. It reverses as the work catches up to the invoice. (Foundation Software; ASC 606)
Where does the cost-to-complete come from on a WIP? The cost-to-complete (estimate to complete, or ETC) is the project manager's forecast of the cost to finish the remaining work. It is the only subjective input on the WIP schedule; contract value, costs to date, and billings to date all come from the project accounting system. The ETC must be entered and updated each close cycle. (Foundation Software)
How WIP Ready helps
The formula chain above is not the hard part of a WIP close — the data movement is. Three of the four inputs already live in Procore, and the fourth has to be chased out of project managers by email every month. WIP Ready reads the three objective inputs (contracts, costs, and billings) directly from Procore and runs this exact chain — EAC, percent complete, earned revenue, over/under billing — to assemble the schedule, with every figure traceable to a Procore field. It does not calculate the cost-to-complete; the PM still owns that number, entered through a one-screen form that timestamps and attributes it, the way an auditor and a surety expect. That keeps the math honest and the close short — about 45 minutes of active work instead of two to three days. If you build your WIP by hand off Procore exports today, see how the workflow changes at wipready.com.
