Work in progress (WIP)
Work in progress is the value of work a business has started but not yet finished or billed. For contractors, it describes open jobs measured by costs incurred and progress made.
On the books, WIP connects costs, progress and billings. Costs land on the job as work happens, revenue is earned as the job progresses, and billings follow their own schedule. The gaps between those three numbers are where overbilling and underbilling live.
Example
A $200,000 job with $90,000 of costs posted against a $150,000 total estimated cost is 60 percent complete, so $120,000 of revenue is earned. If only $100,000 has been billed, the $20,000 gap is earned but unbilled work.
Common mistake
Treating billings as earnings. A job can be fully billed and half done, or half billed and nearly finished. Cash position and earned position are different numbers.
How to use it
Review WIP monthly, job by job, after costs are reconciled. Update estimates to complete at the same time, so earned revenue reflects the job as it is, not as it was quoted.
Why WIP matters
WIP is how a contractor sees the future of a job instead of its history. A job drifting over budget shows up in WIP months before the final invoice. Banks and bonding companies read WIP schedules for the same reason: they reveal whether the backlog is profitable and whether billings are ahead of or behind the work.
WIP and the balance sheet
When billings exceed earned revenue, the difference is a liability, often called billings in excess of costs. When earned revenue exceeds billings, the difference is an asset, often called costs and earnings in excess of billings. Both sit on the balance sheet until the job catches up with itself.
Keeping WIP honest
WIP fails in three places: costs posted late or to the wrong job, change orders missing from the contract value, and estimates to complete that never get updated. Monthly reconciliation plus an honest estimate review keeps the schedule meaningful. A stale WIP is worse than none, because it lends false confidence.
WIP outside construction
Manufacturers use WIP for partly finished goods, and agencies for unbilled client work. The logic is the same: costs accumulate as work progresses, and the books should show what is earned, what is billed and what is still open.