Reconciling WIP for Accurate Financials
The Hidden Risk in Construction Financials That Could Cost You Bonding Capacity
For construction companies, the Work-in-Progress (WIP) schedule isn’t just a standard report—it’s the financial pulse of your jobsite. It tracks how far along your projects are, aligns revenue to progress, and drives trust from bonding agents, CPAs, and internal stakeholders.
But there’s one issue we see time and again: the WIP schedule doesn’t match the Income Statement. And that mismatch can lead to real problems—overstated profits, inaccurate backlog, and weakened financial credibility.
Often, the issue stems from relying too heavily on canned reports generated by ERP systems like Sage 100, Foundation, or Viewpoint, which don’t tell the full story.
Why This Reconciliation Matters
When the WIP schedule and Income Statement are out of sync, it’s more than just a formatting issue—it’s a red flag. The WIP shows how much revenue should be recognized based on project completion. The Income Statement shows what’s actually been recorded.
If those two don’t match:
Project profitability gets distorted
Over/under billings may be misclassified
Backlog becomes unreliable
Your CPA or bonding company may lose confidence in your numbers
In short, your financial visibility and credibility are at risk.
Why ERP “Canned Reports” Fall Short
ERP systems are great at storing data—but not always at reflecting financial reality. System-generated WIP reports often:
Miss approved but unprocessed change orders
Don’t reflect manual reclasses or payroll accruals
Ignore indirect cost allocations
Show revenue based purely on percent complete, ignoring actual GL entries
Fail to carry over prior-period adjustments
Relying solely on these reports means flying blind when it comes to true job performance.
The Solution: Manual WIP Reconciliation
To ensure your Income Statement reflects what’s truly happening in the field, we implement a monthly WIP reconciliation process that includes:
Matching job-level revenue, costs, and gross profit
Validating billings vs. earned revenue
Ensuring over/under billings are recorded in the correct balance sheet accounts
Reviewing payroll accruals, indirect costs, and change orders for completeness
Walking the WIP back to the general ledger (GL)
This isn’t busy work—it’s the backbone of accurate construction accounting. Done right, it protects your margins, supports your bonding capacity, and gives leadership confidence in the numbers.
Conclusion
In construction, your financials aren’t just for your CPA—they’re a strategic tool that impacts growth, risk, and reputation. If your WIP doesn’t tie to your Income Statement, your business could be making decisions based on faulty assumptions.
Book a Call with Link2CFO
At Link 2 CFO, we specialize in construction finance—and we don’t just look at your reports, we dig into them. We help you reconcile your WIP to the GL every month to ensure your financials are audit-ready, bonding-ready, and decision-ready.
