Percentage of completion vs WIP: what every construction controller needs to know
The percentage of completion method is a revenue recognition approach, and the WIP schedule is the report that applies it — these are not interchangeable terms, and conflating them produces inaccurate earned revenue figures. Controllers who mix the two up end up with billing positions that don't hold up to surety scrutiny, and period-end financials that misstate both revenue and the balance sheet. This guide explains exactly how the two concepts relate and how to use both correctly.
Key takeaways
Here is what matters most before you compare options.
Distinction: The percentage of completion (POC) method is a revenue recognition approach; the WIP schedule is the period-end report that applies POC to every active job and translates percent complete into earned revenue.
Calculation: The cost-to-cost formula — cost incurred to date divided by total estimated contract cost — produces the percent complete figure that drives all downstream earned revenue calculations.
Billing position: Percent complete drives earned revenue, and the gap between earned revenue and billings to date determines whether each job is overbilled (a current liability) or underbilled (a current asset).
Tool limits: QuickBooks Online does not natively calculate percent complete, generate earned revenue by job, or produce a WIP schedule; construction teams on QBO must build this outside the system or switch to software designed for it.
Compliance: ASC 606 (Revenue from Contracts with Customers) does not use the phrase "percentage of completion," but for construction contracts where performance obligations are satisfied over time, its over-time recognition criteria align directly with the cost-to-cost POC approach.
What is the percentage of completion method and how does the cost-to-cost calculation work?
The percentage of completion method is a revenue recognition approach that records contract revenue proportional to how much work has been completed, not when cash is received or when the job closes. For a general contractor or specialty trade firm managing multi-year contracts, POC is the only method that produces an accurate picture of earned revenue in each reporting period. Without it, your P&L either understates or overstates performance depending on when invoices happen to go out.
How the cost-to-cost formula works (with the actual math)
The cost-to-cost formula is: cost to date ÷ estimated total cost = percent complete. Cost to date includes all direct job costs posted through the reporting period — labor, materials, subcontractor costs, and equipment. Estimated total cost is the current estimate at completion (EAC), which is the controller's best projection of what the job will cost when finished — not the original bid amount.
The EAC must be updated as scope changes and field conditions shift. When teams skip that update, they carry a stale denominator into the formula, and the percent complete number becomes unreliable. That's where profit fade originates: the job looked 40% complete last month but is genuinely 35% complete because costs have run ahead of the original estimate.
Percentage of completion vs completed-contract method
The completed-contract method (CCM) is a revenue recognition alternative where all revenue and costs are recognized only when the job is substantially complete. CCM works for short-duration or low-uncertainty projects where the outcome is predictable and the timeline is weeks, not months. For multi-period construction contracts, GAAP and ASC 606 prefer POC because CCM produces financials that don't reflect economic reality during the life of the contract. Tax treatment is a separate question — contractors should work with their CPA on method elections under IRC § 460, which is outside the scope of this guide.
What does a WIP schedule actually measure in construction accounting?
A WIP schedule is the report that applies the percentage of completion method to every active job, translating percent complete into earned revenue and comparing that figure to billings to date to surface each job's billing position. The WIP schedule is a period-end document, not a running ledger entry. It feeds both the income statement (earned revenue recognized in the period) and the balance sheet (overbilling as a current liability, underbilling as a current asset). Lenders, sureties, and bonding companies treat the WIP schedule as a core underwriting document — contractors without one are seen as operationally weak regardless of their P&L performance.
If you're building your WIP schedule manually in QuickBooks today, the step-by-step process for how to create a WIP schedule in QuickBooks Online covers the mechanics in detail.
The columns every WIP schedule needs
A complete WIP schedule includes the following columns for each active job:
Contract value: The total agreed contract price, including approved change orders.
Estimated total cost: The current estimate at completion — what the job is projected to cost when finished.
Cost to date: All direct job costs posted through the reporting period.
Percent complete (derived): Cost to date divided by estimated total cost.
Earned revenue (derived): Percent complete multiplied by contract value — this is what the contractor has economically earned, regardless of what has been invoiced.
Billings to date: The total amount invoiced to the owner through the reporting period.
Over/under billing position (derived): Earned revenue minus billings to date — negative means overbilled (liability), positive means underbilled (asset).
Why lenders and bonding companies require WIP schedules
Sureties and lenders treat the WIP schedule as their primary window into a contractor's financial health because it reveals what the P&L alone cannot. A contractor with strong revenue on the income statement but a pattern of underbilling across jobs is funding job costs without collecting corresponding revenue — a working capital risk that will compress cash before the end of the year.
Systematic overbilling raises a different concern: the contractor has collected more than it has earned. If a job goes sideways, that liability has to be returned or absorbed as a loss. Bonding companies routinely adjust contractor capacity calculations based on overbilling positions they find in WIP reviews. Contractors without a current, job-level WIP schedule have no way to demonstrate their billing positions are sound.
How does percent complete determine whether a job is overbilled or underbilled?
The gap between earned revenue and billings to date on a WIP schedule tells you whether a job is overbilled (you've invoiced more than you've earned) or underbilled (you've earned more than you've invoiced). Percent complete feeds earned revenue, earned revenue is compared to billings to date, and the difference is the billing position. Both positions carry balance sheet consequences that must be recorded at period-end to produce accurate financial statements.
Overbilling: what it means and when it becomes a problem
Overbilling, formally called "billings in excess of costs and estimated earnings," is the condition where billings to date exceed earned revenue. The contractor has invoiced the owner for more than the percentage of work completed justifies. Overbilling shows as a current liability on the balance sheet. Chronic overbilling — a pattern across multiple jobs over multiple periods — signals aggressive invoicing practices that sureties and auditors will flag during WIP reviews and that can affect bonding capacity.
Underbilling: the cash flow risk hiding in your WIP
Underbilling, formally called "costs and estimated earnings in excess of billings," is the condition where earned revenue exceeds billings to date. The contractor has completed more work than it has invoiced for. Underbilling shows as a current asset, but it's a paper asset until the invoice goes out and gets collected. Persistent underbilling means the contractor is financing job costs out of its own cash — a working capital drain that compounds across a full portfolio of underbilled jobs. For a deeper walkthrough of both positions and how to calculate them, see the guide on over- and underbilling in construction.
Worked example: how do contract value, costs to date, and billings connect in a WIP schedule?
The following example shows a single-period WIP calculation for two jobs at a mid-size general contractor: one overbilled and one underbilled. All inputs are realistic for a contractor running $20M–$50M in annual revenue.
WIP schedule example: overbilled vs underbilled job | |||||||
Job | Contract value | Est. total cost | Cost to date | % complete (cost to date ÷ est. total cost) | Earned revenue (% complete × contract value) | Billings to date | Over/under position (earned revenue − billings) |
|---|---|---|---|---|---|---|---|
Job A — Office buildout (overbilled) | $2,500,000 | $2,000,000 | $800,000 | 40% ($800K ÷ $2,000K) | $1,000,000 (40% × $2,500K) | $1,150,000 | −$150,000 (liability) |
Job B — Mechanical fit-out (underbilled) | $3,200,000 | $2,560,000 | $1,280,000 | 50% ($1,280K ÷ $2,560K) | $1,600,000 (50% × $3,200K) | $1,350,000 | $250,000 (asset) |
Reading the result: what to do when the number is negative vs positive
A negative over/under position means billings exceed earned revenue — the job is overbilled and the difference is recorded as a current liability called "billings in excess of costs and estimated earnings." A positive over/under position means earned revenue exceeds billings — the job is underbilled and the difference is recorded as a current asset called "costs and estimated earnings in excess of billings." Both adjustments must be recorded at period-end as journal entries; they're not automatic in most accounting systems, including QuickBooks.
These adjustments feed directly into your period-end financial statements. The construction P&L template is a useful complement for teams that need to see how the WIP adjustment flows into the income statement alongside job-level gross margin.
Where does QuickBooks Online stop short — and when do you need Sheets or Flow ERP?
QuickBooks Online does not natively calculate percent complete, generate earned revenue by job, or produce a WIP schedule — finance teams on QBO must build and maintain this outside the system or move to a tool built for it. For job costing reporting in QuickBooks Online for specialty trade contractors, QBO can track costs by job using class or project tracking, but it stops there. The earned revenue calculation, the billing position, and the WIP schedule itself all have to be built manually in spreadsheets. One controller described the pattern directly: "Most of the P&Ls are the same but some are slightly different just depending on what they're selling. So I can't even just export them to Excel and cut and paste what I need because they don't always line up."
According to LiveFlow's Finance in the AI Era report (May 2026), 78% of finance teams still move data primarily via manual spreadsheet exports. For construction controllers running WIP schedules across 10 or more active jobs, that manual export cycle adds days to close every month.
When LiveFlow FP&A is the right bridge
LiveFlow FP&A is the right solution for controllers who are still on QBO and not ready for a full ERP migration but need live, consolidated reporting without manual exports. Teams using LiveFlow FP&A build WIP schedules in Google Sheets or Excel with live data connections to QBO — no monthly export cycle, no stale numbers when estimates change mid-period. LiveFlow FP&A also supports multi-entity consolidation for contractors managing more than one QBO file, pulling financials across entities into a single, always-current view without rebuilding the workbook each month.
When Flow ERP is the right move
Flow ERP is built for multi-entity general contractors, homebuilders, and specialty trade operators who have outgrown QuickBooks and need native job costing, multi-entity consolidation, and intercompany workflows without a consultant-heavy implementation. Flow ERP houses all entities in a single workspace — no switching between files, no manual reconciliation across QBO instances. Multi-entity is built into the core architecture, not layered on as an add-on, which makes it especially practical for construction firms managing multiple job sites or legal entities with shared overhead costs. Teams migrate from QuickBooks Online to Flow ERP in under 2 minutes, with books live in 11 days or less.
To compare how different tools stack up across growth stages, the guide to best construction accounting software by growth stage walks through the decision by company size and complexity.
What do finance teams need to know about ASC 606 and the percentage of completion method?
ASC 606 (Revenue from Contracts with Customers) does not use the phrase "percentage of completion," but for construction contracts where the contractor controls the asset being built over time, it requires revenue recognition over time using an input or output method — which in practice aligns directly with the cost-to-cost percentage of completion approach. The practical effect of ASC 606 for most GCs and specialty trade contractors is that cost-to-cost POC is now the standard, not the alternative.
Does GAAP require the percentage of completion method?
GAAP does not mandate POC by name, but ASC 606's over-time recognition criteria for construction contracts makes cost-to-cost the standard approach for most GC and specialty trade contracts. Under ASC 606, if the contractor controls the asset as it's being built — which is true for most fixed-price construction contracts — revenue must be recognized over time, and cost-to-cost is the dominant input method used to measure progress. The practical result is that most multi-period construction contracts require POC under GAAP.
Is the percentage of completion method still allowed?
Yes — POC is both allowed and required for most long-term construction contracts under ASC 606's over-time recognition criteria. The completed-contract method is not eliminated by ASC 606, but it's no longer the default for multi-period contracts where the contractor controls the asset being built. Tax reporting operates under a separate framework: under IRC § 460, long-term contracts generally must use the percentage completion method for tax purposes, though the calculation can differ from the GAAP cost-to-cost approach. Controllers should work with their CPA on tax-method elections without treating the GAAP and tax calculations as interchangeable.
Ready to close faster and report with confidence across every job?
Accurate percent complete and WIP reporting only produce reliable financials when the underlying job cost data is current, complete, and accessible without manual exports. The math in this guide is straightforward — the challenge is keeping the inputs clean at period-end when estimates change, change orders come in, and costs post late.
If your system can't produce a WIP schedule or calculate earned revenue by job automatically, you're adding unnecessary risk to every close. Teams still on QuickBooks can use LiveFlow FP&A to connect live job cost data to their WIP schedules in Sheets without the monthly export cycle. Multi-entity contractors who've outgrown QBO can explore Flow ERP's native job costing and multi-entity architecture — with migration from QuickBooks in under 2 minutes and books live in 11 days or less.
Book a demo to see how construction finance teams are closing faster and producing WIP schedules they can stand behind at audit.
Frequently asked questions
Quick answers to the questions contractors ask most about this topic.
Is ASC 606 a percentage of completion method?
ASC 606 does not use the phrase "percentage of completion," but for construction contracts where the contractor controls the asset being built over time, it requires revenue recognition over time using an input or output method. In practice, the cost-to-cost input method — which is the core of the traditional POC approach — is the standard used by most GCs and specialty trade contractors to satisfy ASC 606's over-time recognition criteria. The FASB's Revenue from Contracts with Customers standard is the authoritative source for the full technical requirements.
How is WIP calculated in construction accounting?
WIP in construction is calculated by applying the cost-to-cost percentage of completion formula to every active job: cost incurred to date divided by total estimated contract cost equals percent complete; percent complete multiplied by contract value equals earned revenue; earned revenue minus billings to date equals the over/under billing position. The WIP schedule is typically prepared at period-end and must be updated monthly to reflect current estimate-at-completion figures. Teams building this calculation manually in QuickBooks can reference the step-by-step guide on how to create a WIP schedule in QuickBooks Online.
Does GAAP require the percentage of completion method?
GAAP does not mandate the percentage of completion method by name, but ASC 606's over-time recognition criteria effectively require cost-to-cost POC for most multi-period construction contracts where the contractor controls the asset being built. The completed-contract method remains available under GAAP for short-duration or low-uncertainty projects, but it is no longer the default for long-term contracts. Controllers at multi-entity construction firms should confirm their method elections with their CPA and auditors to ensure alignment between GAAP financials and tax reporting.
Is the percentage of completion method still allowed?
Yes — POC is not only allowed but required under ASC 606 for most long-term construction contracts where performance obligations are satisfied over time. The transition from legacy GAAP (which permitted completed-contract for many contracts) to ASC 606 made cost-to-cost POC the standard for qualifying contracts, not the exception. For tax purposes, long-term contractors are generally required to use a percentage completion method under IRC § 460, though the tax calculation differs from the GAAP cost-to-cost approach.
What's the difference between the percentage of completion method and the completed-contract method?
The percentage of completion method recognizes revenue and costs proportionally throughout the life of a contract based on how much work has been completed in each period; the completed-contract method defers all revenue and cost recognition until the job is substantially complete. POC produces financials that reflect economic reality during a long contract; the completed-contract method produces financials that can be misleading for stakeholders trying to assess performance mid-project. Under ASC 606, most multi-period construction contracts must use an over-time recognition approach that aligns with POC, while completed-contract is generally limited to short-duration or low-uncertainty contracts.
