Work in Progress (WIP) is one of the most consequential figures on a construction company's balance sheet. Get it wrong and your reported profit is wrong. Get it wrong consistently and your financial statements are unreliable, your project decisions are made on bad data, and your auditors have questions you cannot answer cleanly.
Most construction businesses under $10M manage WIP in spreadsheets. It works, more or less. The volume of projects is manageable, the finance team knows every job by name, and the monthly WIP schedule takes a day or two to pull together. It is manual, but it is contained.
Above $10M, that model starts to break. By $30M, it is usually a genuine problem. Here is why.
What WIP accounting actually is
In construction, revenue recognition follows the percentage of completion method. Under AASB 15 (Revenue from Contracts with Customers), construction contracts are typically recognised over time because the customer controls the asset as it is built. You do not recognise revenue when you invoice. You recognise it as work is performed, measured by reference to costs incurred relative to estimated total cost.
The calculation requires knowing, for each active project: the total contract value, the estimated total cost to complete, the costs incurred to date, and the percentage of completion. From those inputs, you can calculate recognised revenue, gross profit to date, and the WIP position.
Under AASB 15, the correct balance sheet terminology is contract asset (where revenue recognised exceeds amounts billed) and contract liability (where amounts billed exceed revenue recognised, sometimes called overbilling). These replace the older "WIP" and "billings in excess" labels that practitioners still use interchangeably. Auditors and bank lenders now use the AASB 15 terminology, so it is worth understanding both.
It is not a complex calculation. The problem is doing it accurately, at scale, every month, across dozens of projects, with data that lives in different systems.
Why spreadsheets fail
Data is stale by the time it is compiled. Project cost data lives in your accounting system. Forecast-to-complete estimates live with project managers. Contract variations are approved in emails. By the time your finance team pulls all of this together into a WIP schedule, the data can be two to four weeks old. You are making decisions based on a position that no longer exists.
You are making decisions based on a position that no longer exists.
Manual entry creates errors. Every number that has to be typed from one system into another is a potential error. Cost overruns get missed. Variation amounts are entered incorrectly. A formula row is inadvertently deleted. In a spreadsheet WIP schedule with 40 active projects, errors are not a risk. They are an inevitability.
Reconciliation is a manual process. The WIP schedule should reconcile to the general ledger. On a spreadsheet, that reconciliation is a separate manual step. It is time-consuming, it is often skipped under pressure, and when it does not reconcile, diagnosing the variance takes hours.
There is no audit trail. When an auditor asks why the WIP balance changed by $400,000 between March and April, a spreadsheet cannot tell them. There is no history of who changed what, when, or why. This is a material weakness in internal controls.
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What purpose-built WIP tracking looks like
In Sage Intacct, WIP is a native function. Project costs are captured in real time as they are incurred. Forecast-to-complete estimates are maintained inside the system by project managers. Contract values and approved variations are tracked against each project record.
The WIP calculation runs automatically. There is no month-end schedule to build. The system produces it on demand. Revenue recognition is automated based on percentage of completion. The balance reconciles to the general ledger because it is the general ledger.
For a construction business managing 30 active projects, the difference in finance team time between a spreadsheet WIP process and a system-driven one is typically three to five days per month, every month. Over a year, that is weeks of finance capacity redirected from data entry to actual analysis.
The cost of getting it wrong
Beyond the time cost, inaccurate WIP has direct financial consequences. Understated WIP means understated profit. You may be under-distributing earnings or under-reporting to lenders. Overstated WIP is worse: it inflates the balance sheet and can mask project losses until they crystallise at completion.
For businesses with bonding requirements, bank covenants tied to profitability, or investor reporting obligations, WIP accuracy is not an operational nicety. It is a compliance requirement.
Spreadsheet WIP works until it does not. The inflection point for most construction businesses is somewhere between $10M and $20M in turnover, or when the number of active projects exceeds what one person can manage manually. If your finance team is spending more than a day each month building the WIP schedule, it is worth understanding what a system-driven approach would cost, and save.
See also: how Sage Intacct handles construction accounting and take the free construction finance diagnostic to see where your business stands.
What good WIP looks like in practice
A well-run construction finance function produces a WIP schedule every month that is reconciled to the general ledger, reviewed by project managers for reasonableness, and closed within three business days of month-end. The numbers are trusted. The CFO can present them to the board without caveats.
That is not an aspirational standard. It is achievable when the system is set up correctly. Sage Intacct, configured for construction, produces a live WIP schedule that calculates automatically from actual cost data and percentage-of-completion inputs updated by project managers. There is no spreadsheet step. There is no manual reconciliation.
The finance team shifts from compiling data to reviewing it. Project managers get visibility into their job margin in real time, not three weeks after the period closes. The CFO can see overbilling and underbilling positions across the entire portfolio at any point in the month.
The cost of getting WIP wrong
Misstated WIP flows directly to your income statement. If you recognise too much revenue on a job, you overstate profit. If the error persists into an audit, your financial statements require restatement. That is not a theoretical risk. It is a documented failure mode in construction businesses at the $30M to $100M range that relied on manual WIP processes for too long.
Beyond audit risk, there is a capital cost. Lenders extending project finance facilities want to see WIP schedules they trust. If your WIP numbers shift materially every month, or if your bank has ever asked for more detail than your spreadsheet provides, you are already paying the price in tighter covenants or more conservative facility sizing.
Construction businesses that move to automated WIP reporting typically see month-end close time drop by 40 to 60 percent and find that the first accurate WIP schedule surfaces project margin issues that had been hidden in manual processes for months.
How to know if you have a WIP problem
These are the signs. Your month-end WIP schedule takes more than three days to produce. Project managers do not trust the numbers and keep their own cost records. Variations are not captured consistently, so your completion percentage drifts from reality. Your WIP position fluctuates sharply between periods in ways that cannot be explained by project activity. Your auditors spend significant time on WIP during the year-end process.
If two or more of those apply, the WIP process is the problem, not the people running it. The solution is a system designed for how construction accounting works, not a general ledger with a spreadsheet attached to the side.
For a detailed look at how Sage Intacct for construction handles WIP, percentage-of-completion, and balance sheet presentation under AASB 15, see our full guide to the platform.