WIP Accounting for Construction

Thanks for reaching out to the Community, @Damien1.

To receive the best answer to your question, I recommend reaching back out to your accountant. They'll be able to provide you with the most accurate accounting information about WIP for your unique business. If you don't have an accountant, no worries. You can visit our site to find a ProAdvisor to help you with any accounting questions that you may have.

If you have any other questions or concerns, please don't hesitate to ask. Enjoy the rest of your evening.

@Damien1 , this is a great question that deserved a real answer. The double-counting issue you describe is a classic completed contract method problem.

Under completed contract, when you send a progress billing invoice, you're creating A/R (asset) for work that's also sitting in CIP/WIP (asset). The fix is an offsetting liability account, typically called "Billings in Excess of Costs" or "Deferred Revenue - Construction."

The journal entry when you invoice:
- DR: Accounts Receivable (the invoice does this automatically)
- CR: Billings on Construction Contracts (liability)

This liability offsets the WIP asset on your balance sheet. Your net WIP position is: CIP/WIP Asset minus Billings liability. If billings exceed costs, you have a net liability (overbilled). If costs exceed billings, you have a net asset (underbilled).

At job completion, you close everything out:
- DR: Billings on Construction Contracts (zero the liability)
- CR: Construction Revenue (recognize income)
- DR: Construction Expense / COGS
- CR: CIP/WIP (zero the asset)

In QBO, you'd need to create the Billings liability account manually and post a JE each time you invoice. It's doable but adds a manual step to every billing cycle.

@DylanMiller77, the approach above should work for you too.

For the WIP schedule itself (the report your surety/bank/CPA wants each month that shows over/under billing per job), I built a tool that connects to QBO and automates the calculation: wipreports.com. It handles the percentage of completion math and generates the PDF. But the balance sheet treatment Damien described is a separate accounting setup that needs to happen in QBO regardless of what tool you use for reporting.