The Kentucky CPA Journal

In construction accounting, few reports are as critical, or as underutilized, as the work-in-progress (WIP) schedule. While traditionally viewed as a tool to support revenue recognition under the percentage-of-completion method, the WIP’s true value extends far beyond compliance. For CPAs advising contractors, it presents a high-impact opportunity to deliver strategic insights, improve bonding capacity, and guide more informed decisions.

At its core, the WIP schedule compares costs incurred to date with total estimated costs and billings. It calculates overbillings (a liability) and underbillings (an asset) and supports revenue recognition under ASC 606 and IRC 460, which require revenue to be recognized as performance obligations are satisfied, typically using an input method based on cost-to-cost progress. But a well-prepared WIP schedule also reveals estimating patterns, job performance trends, and cash flow risks. Updated monthly, it becomes a dynamic planning tool by guiding resource allocation, forecasting, and operational strategy.

Despite its importance, many contractors treat the WIP schedule as a year-end formality, prepared only to satisfy auditors or bonding agents. This reactive approach misses the opportunity to use the WIP as a real-time management tool. In fact, for many contractors, the WIP is the most revealing financial report they produce.

Poor WIP habits can raise red flags. Omitting closed jobs, failing to update estimates-to-complete (ETCs), or misallocating indirect costs can distort job margins and weaken bonding trust. Unrecorded change orders or a failure to reconcile the WIP to the general ledger also diminish credibility. And when project managers are left out of the process, valuable field insights, like productivity slowdowns or pending scope changes, get lost.

This is where CPAs can make a real impact. We can reposition the WIP as a forward-looking tool rather than a backward-facing worksheet. Start by helping clients understand how over and underbillings affect cash flow, borrowing needs, and bonding evaluations. Use the WIP to benchmark ETCs against actual final costs, revealing estimating gaps or bid weaknesses. Over time, this can support estimator accountability and drive training.

CPAs are also well-positioned to facilitate job forecast reviews and standardize cost structure application, particularly for labor burden and overhead. By advising on these practices and coaching contractors through monthly WIP meetings, CPAs strengthen the link between accounting and operations, ultimately improving accuracy and financial clarity.

The WIP schedule is also a rich source of key performance indicators. Help clients track metrics like backlog margin percentage, revenue burn rate, billing-to-cost ratios, and job fade. These indicators provide insight into execution risk, estimator performance, and project health. For those ready to advance, CPAs can recommend dashboards that connect field updates to financial forecasts, allowing management to respond quickly to cost shifts or schedule delays.

Another area where CPAs add value is in bonding support. A clean, consistent WIP helps build confidence in the contractor’s capital, capacity, and character, the “Three Cs” of bonding. Highlighting backlog margins, margin fade trends, and job borrowing patterns allows CPAs to frame contractor performance in terms that resonate with sureties. Additionally, surety underwriters often focus on working capital ratios and underbilling levels as proxies for liquidity and billing discipline. By tying WIP analysis to these metrics, CPAs can position clients for stronger bonding terms and higher limits.

Ultimately, the WIP schedule is more than a compliance deliverable, it’s a strategic tool. It can uncover internal blind spots, support better bidding, and enhance the contractor’s financial resilience. For CPAs, using the WIP to drive insight is a clear way to lead beyond compliance and become an indispensable part of the contractor’s advisory team.

About the author: Collin Temple, CPA, CCIFP is an audit manager at Monroe Shine & Co., Inc. in New Albany, Indiana. Temple serves on the Society’s Accounting and Auditing Committee.