What is WIP
1. Start with your key info for each project:
• Total contract value
• Total estimated cost
• Cost to date (from accounting system)
• Billings to date (how much you’ve invoiced)
Calculate % Complete:
Cost to date ÷ Total estimated cost = % complete
Example: If you spent $50,000 and estimated total cost is $100,000, you’re 50% done.
Calculate Revenue Earned:
% complete × Contract value = Revenue to recognize
Example: 50% × $200,000 contract = $100,000 revenue earned
Compare Revenue to Billings:
• If revenue > billings → under-billed (you’ve earned more than invoiced)
• If billings > revenue → over-billed (you’ve invoiced more than earned)
Record adjustments if needed
In your WIP report or financials, you’ll need to account for over/under billings, this shows true profit.
Extra Tips:
Use a consistent Excel or system template every month
Set reminders to update WIP monthly or when job info changes
Talk to PMs about new change orders or cost overruns, WIP is only as accurate as your data
Keep notes! Write why certain jobs are over/under, it’ll help next time
let me know if you need more tips 🤍🤍
Work in Progress (WIP) is a crucial accounting concept in project management that allows you to track the flow of costs, revenues, and profitability during a project's lifecycle. By understanding WIP, businesses can better manage their resources and maintain financial accuracy. A simple way to visualize this is to think of baking a cake - if you've completed 50% of the tasks associated with the project, you should recognize only 50% of the revenue. To effectively manage WIP, consistency is key. Establishing a standardized template for recording WIP data can streamline your process. Use columns for contract value, cost to date, percentage completed, and revenue earned to help your team quickly gauge project status. Regular monthly updates ensure that any changes in scope or costs are promptly reflected, improving the accuracy of your reports. Engagement with project managers is also essential. They provide the most current insights regarding potential cost overruns or change orders, which can significantly impact WIP calculations. Regular communication and note-taking about project developments can aid in understanding discrepancies between billings and revenue earned, paving the way for more accurate future forecasts. For those using accounting software or Excel, it's beneficial to set automated reminders to review and update the WIP monthly. This habit not only keeps your data up-to-date but also allows for timely adjustments in project accounting, hence demonstrating true profit margins. Overall, mastering WIP can lead to improved financial stewardship within your organization.
@Ski25