Construction WIP Journal Entries in QuickBooks: Over and Under Billing Explained

Sound Familiar?

Signs your QuickBooks WIP accounting needs attention:

• Your P&L shows a profitable month but your bank account didn't grow
• Your accountant asks for a WIP schedule and you send them a job list instead
• You recognize revenue when you send invoices rather than as you complete work
• Your banker asked about overbilling during your last credit line review and you weren't sure what to say
• Your end-of-year tax liability surprises you because your QuickBooks profit didn't match your cash position

What We Found

What Over-Billing and Under-Billing Actually Mean

Over-billing and under-billing are two sides of the same timing problem: the moment you invoice doesn't always match the moment you earn the revenue. On a long-form construction project — a custom home, a major remodel, a commercial tenant improvement — this timing gap can be substantial. WIP accounting exists to correct for it.

Over-billing (Billings in Excess of Costs and Estimated Earnings)

Over-billing happens when you've invoiced your client for more than the percentage of work you've actually completed. You bill 40% of the contract at contract signing, but as of the balance sheet date you've only completed 25% of the work. You've collected money you haven't yet earned. That delta — the 15% of contract value you've billed but not earned — is a liability. You owe the client work. Until you perform it, the cash sitting in your account isn't really profit. It's a future obligation.

In QuickBooks, over-billing is recorded as "Billings in Excess of Costs" — a current liability on your balance sheet. If your financial statements don't include this entry, your revenue is overstated by exactly the amount you've overbilled across all active projects.

Under-billing (Costs and Estimated Earnings in Excess of Billings)

Under-billing is the reverse. You've completed 60% of a project but you've only billed 45%. You've earned revenue you haven't invoiced yet. That delta is an asset — essentially a receivable for work performed but not yet billed. Builders who carry significant under-billing are doing work and deferring cash collection, which creates cash flow strain even on profitable jobs.

In QuickBooks, under-billing is recorded as "Costs in Excess of Billings" — a current asset on your balance sheet. Without this entry, your revenue is understated by the value of completed-but-unbilled work.

The formula that drives both entries

Both entries are calculated from the same WIP schedule. For each active project:

• Percent complete = Costs incurred to date ÷ Total estimated costs
• Earned revenue to date = Percent complete × Total contract value
• Overbilling = Billings to date − Earned revenue to date (when positive)
• Underbilling = Earned revenue to date − Billings to date (when positive)

These calculations happen outside QuickBooks — typically in a spreadsheet. Then the totals become journal entries that adjust your balance sheet at month end.

The Actual Journal Entries in QuickBooks

Theory is one thing. Here's exactly how the entries work in QuickBooks. I'll use a concrete example.

The scenario

You have two active projects at month end:

• Project A: $200,000 contract. $80,000 costs incurred. Total estimated costs: $160,000. Billed to date: $120,000.
• Project B: $150,000 contract. $45,000 costs incurred. Total estimated costs: $100,000. Billed to date: $50,000.

Project A calculation:

• Percent complete: $80,000 ÷ $160,000 = 50%
• Earned revenue: 50% × $200,000 = $100,000
• Billed: $120,000
• Overbilling: $120,000 − $100,000 = $20,000 (liability)

Project B calculation:

• Percent complete: $45,000 ÷ $100,000 = 45%
• Earned revenue: 45% × $150,000 = $67,500
• Billed: $50,000
• Underbilling: $67,500 − $50,000 = $17,500 (asset)

The journal entries in QuickBooks

For over-billing (Project A):

• Debit: Construction Revenue — $20,000
• Credit: Billings in Excess of Costs (Current Liability) — $20,000

For under-billing (Project B):

• Debit: Costs in Excess of Billings (Current Asset) — $17,500
• Credit: Construction Revenue — $17,500

These entries reduce over-stated revenue on Project A and recognize under-stated revenue on Project B. Your P&L now reflects work actually earned, not just invoices sent.

Reversing entries at the start of the next period

WIP journal entries are adjusting entries — they correct the balance sheet at a point in time and get reversed at the start of the next period. In QuickBooks, you can set journal entries to automatically reverse on the first day of the following month. The reversal zeroes out the WIP accounts, and you recalculate them fresh from the current WIP schedule each month. This prevents WIP balances from accumulating and becoming impossible to reconcile.

Setting up the accounts in QuickBooks

You need two accounts in your QuickBooks chart of accounts:

1. Costs in Excess of Billings — Account type: Other Current Asset. This holds the value of work performed but not yet billed.
2. Billings in Excess of Costs — Account type: Other Current Liability. This holds the value of amounts billed beyond work performed.

If these accounts don't exist in your chart of accounts, add them before running your first WIP entries. If your chart of accounts needs a broader cleanup, a cost code and chart of accounts audit is often where we start — because WIP entries built on top of a messy COA produce reports nobody can read.

Building a Monthly WIP Schedule Outside QuickBooks

The journal entries are only as accurate as the WIP schedule behind them. The schedule is a separate spreadsheet — outside QuickBooks — that you run monthly before closing the books. It doesn't have to be complicated. For a builder running 4–8 active projects, a simple table with the following columns handles it:

1. Project name
2. Total contract value (including approved change orders)
3. Total estimated cost to complete
4. Costs incurred to date (pulled from JobTread or QuickBooks job cost report)
5. Percent complete (column 4 ÷ column 3)
6. Earned revenue to date (column 5 × column 2)
7. Billings to date (pulled from QuickBooks AR)
8. Over/under billing (column 7 − column 6)

Run this table at month end. Sum columns 8 separately for positive values (over-billing total) and negative values (under-billing total). Those two totals become your journal entries.

This schedule also tells you something valuable beyond the accounting: it shows which projects are under-billed, meaning you have cash flow recovery available if you bill more aggressively. And it shows which projects are significantly over-billed, meaning your next draw is essentially already spent on committed costs — and you need to be careful about spending it before the work comes in.

I've seen builders run this schedule for the first time and discover $40,000–$90,000 in under-billing they had no idea about. Work they had performed, revenue they had earned, cash sitting on the table because they hadn't invoiced. That's the practical value of WIP accounting beyond the P&L accuracy: it shows you where your cash collection is running behind your production.

If you want to set up the WIP schedule template and QuickBooks account structure together, that's part of the financial systems work we do with builders — building the monthly close process that produces financial statements you can actually use to run the business.

Frequently Asked Questions