What is the formula for percentage of completion?

Percent complete = costs incurred to date ÷ estimated total costs. Earned revenue = percent complete × total contract value. Current-period revenue = earned revenue to date minus revenue recognized previously.

Is percentage of completion required by GAAP?

For long-term contracts where control transfers over time, ASC 606 requires recognizing revenue over time, and cost-to-cost is the most common input method. Very short contracts may be recognized at a point in time instead.

What is the difference between overbilling and underbilling?

Overbilling means invoices exceed the revenue earned — it is a liability and borrowed profit from future months. Underbilling means work performed exceeds invoices — it is an asset and usually a sign billing is behind schedule.

Can QuickBooks Online do percentage of completion?

QuickBooks Online holds the contract, cost, and billing data, but it does not generate a WIP schedule natively. The schedule is built from QuickBooks data in a spreadsheet or a construction add-on, with a monthly journal entry posted back.

What is a WIP schedule and who asks for it?

A work-in-progress schedule lists every open contract with its contract value, estimated cost, cost to date, percent complete, earned revenue, billings, and over/under billing. Banks, surety and bonding agents, and CPAs preparing reviewed statements all ask for it, usually monthly or quarterly.

Profit fade is gross profit on a job declining from the original estimate as the work progresses. It shows up when estimated cost at completion is updated honestly each month. Sureties watch the pattern across jobs closely because it signals estimating or field control problems.

How often should percentage of completion be calculated?

Monthly. Percent complete depends on an up-to-date estimate of total cost, so the calculation is only as good as the most recent re-estimate from the project manager. Quarterly updates hide overruns for too long to act on them.

Construction Accounting Guide · Revenue Recognition

Percentage of completion accounting, explained for contractors

Percentage of completion recognizes revenue as a job is built, not when it is billed or paid. It is the method lenders, bonding companies, and GAAP expect on long-term contracts — and it is the only way to see whether a job is really making money mid-build.

Who this is for: General contractors, specialty trades, and developers running multi-month contracts, especially those with a bank line, surety bond, or reviewed financial statements.

Worked examples

Worked calculation: a $1,400,000 contract at month six

Costs incurred to date are $560,000 and the current estimate of total cost is $1,120,000.

Step	Calculation	Result
Percent complete	$560,000 ÷ $1,120,000	50%
Earned revenue to date	50% × $1,400,000	$700,000
Revenue recognized previously	Prior months' earned revenue	$585,000
Current-period revenue	$700,000 − $585,000	$115,000
Billed to date	Per progress invoices	$760,000
Over / (under) billing	$760,000 − $700,000	$60,000 overbilled

The $60,000 overbilling is a balance sheet liability, not profit — it is cash collected for work not yet performed.

The monthly WIP adjusting entry

Using the numbers above, to move billings out of revenue and onto the balance sheet.

Account	Debit	Credit
Contract revenue	$60,000	—
Billings in excess of costs and earnings	—	$60,000

Reverse this entry at the start of the next period and recalculate from the updated cost estimate.

A three-job WIP schedule

This is the report a bank or surety actually reads. One row per open contract.

Job	Contract	Est. cost	Cost to date	% complete	Earned	Billed	Over / (under)
Ballard duplex	$1,400,000	$1,120,000	$560,000	50%	$700,000	$760,000	$60,000
Tacoma warehouse TI	$620,000	$505,000	$404,000	80%	$496,000	$430,000	($66,000)
Bellevue kitchen remodel	$185,000	$148,000	$37,000	25%	$46,250	$50,000	$3,750

The Tacoma job is underbilled by $66,000 — work performed but not invoiced. That is cash sitting in the field, and it is the first thing to fix.

Step-by-step

1. Confirm the method applies
Percentage of completion fits contracts that span reporting periods and have reliably estimable total costs. Short, single-period jobs can stay on completed contract. Under ASC 606 the same idea appears as revenue recognized over time.
2. Set the contract value and estimated total cost
For each job, record the original contract amount plus approved change orders, and the current estimated cost at completion. These two numbers drive every calculation, so they must be re-estimated monthly by the person running the job.
3. Calculate percent complete (cost-to-cost)
Percent complete = costs incurred to date ÷ estimated total cost. Example: $400,000 spent against a $1,000,000 estimate is 40% complete. Keep unused stored materials out of costs incurred — they inflate progress.
4. Calculate earned revenue
Earned revenue = percent complete × total contract value. At 40% complete on a $1,400,000 contract, earned revenue to date is $560,000. Current-period revenue is that figure minus revenue recognized in prior periods.
5. Compare earned revenue to billings
Billed more than earned = overbilling (a liability, billings in excess of costs and earnings). Billed less than earned = underbilling (an asset, costs and earnings in excess of billings). Both belong on the balance sheet.
6. Post the WIP adjusting entry
Each month, book a journal entry to move the difference between billings and earned revenue into the over/under billing accounts so the income statement shows earned revenue, not invoices sent.
7. Produce the WIP schedule
One row per open job: contract value, estimated cost, cost to date, percent complete, earned revenue, billed to date, over/under billing, and estimated gross profit. This is the report your bank and bonding agent actually read.

Pro tips

Re-estimate cost at completion every month with the project manager — stale estimates are the main source of profit fade.
Track change orders separately until approved, then fold them into contract value.
Watch the trend in estimated gross profit per job, not just the current month's number.
Keep job cost coding clean in QuickBooks first; the WIP schedule is only as good as the cost data.

Common pitfalls

Using billings as a proxy for progress — front-loaded draws make a job look more complete than it is.
Including stored but uninstalled materials in costs incurred.
Never adjusting estimated total cost, which hides overruns until closeout.
Leaving overbillings in revenue, which overstates profit and creates a painful year-end correction.

Frequently asked questions

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