Work in Progress Construction Accounting Basics

The complicating nature of construction accounting is that profit isn’t just measured when a project is completed; instead, it’s tracked continuously through work-in-progress construction accounting. From breaking ground to ribbon-cutting, the construction job requires meticulous financial reporting.

This specialized approach to financial reporting helps contractors track the progress of each project, how much revenue has been earned, and what costs still remain. Done correctly, it gives business owners, lenders, and bonding companies a clear picture of financial health before year-end surprises occur.

Yet many contractors struggle to maintain that visibility, especially when juggling multiple projects and change orders. That’s where work-in-progress construction accounting provides structure and clarity.

Key Takeaways: Work in Progress Construction Accounting

Work-in-progress (WIP) accounting enables contractors to track earned revenue, costs, and profitability across their active projects.
Accurate WIP schedules improve financial statement accuracy, bonding capacity, and overall financial visibility.
Standardized reporting and automation strengthen internal controls and ensure GAAP-compliant financial statements.

Understanding Work in Progress Construction Accounting

At its most basic, work-in-progress construction accounting tracks the value of work completed but not yet billed. It forms the foundation for accurate financial reporting under GAAP and supports both the percentage-of-completion and completed-contract methods.

As the Association of International Certified Professional Accountants (AICPA) notes, “The construction work-in-progress schedule may be the single most important accounting schedule a contractor prepares.” It reflects the current profitability of each contract, identifies overbillings or underbillings, and serves as a roadmap for management decisions.

According to Bennie Lewis, CPA, President and Partner at Assurance Dimensions, “Work in process and completed contract reporting are the highest-risk areas of the construction industry. Virtually all aspects of financial statements and reporting evolve around this financial process.”

Why does accurate WIP reporting matter to contractors?

Construction companies and contractors fear any hint of project delay. A single misstep in a WIP schedule can throw off profit projections, slow bonding approvals, and raise red flags during audits.

Matthew C. McNamara, CPA, CISA, CEO at AD Advisors, LLC and Partner at Assurance Dimensions, LLC, explains, “WIP and backlog reporting are critical in this industry and are essential to meet bonding requirements.” These reports help external stakeholders—banks, sureties, and investors—understand not just what has been earned, but how reliably it’s being tracked.

The AICPA emphasizes that effective WIP accounting ensures “revenue recognition that mirrors the actual performance of the project,” reducing the risk of misstated earnings or overlooked costs.

Best Practices for Reliable WIP Accounting

Strong work-in-progress construction accounting starts with structure and consistency. Contractors should aim to:

Reconcile WIP schedules monthly with the general ledger.
Review project progress with field managers to confirm estimated costs to complete.
Standardize WIP templates and automate data collection through accounting software.
Ensure accurate documentation of change orders, billings, and costs.

Partnering for Confidence and Compliance

At Assurance Dimensions, our team helps contractors strengthen internal controls, refine WIP construction accounting processes, and prepare clear, GAAP-compliant financial statements. Accurate WIP reporting empowers construction leaders to make informed, profitable decisions throughout every project.

At Assurance Dimensions, we are experts in construction accounting. We offer competitive pricing and take the time to understand your business, allowing us to customize our approach and provide the best, most accurate financial oversight possible.