How to Handle Work in Progress (WIP) in QuickBooks for Contractors

Builders and contractors who purchase land and then develop it have to comply with accounting requirements for revenue and expense recognition that are a little different and require a some modification of the standard QuickBooks set up.  The accounting rule is that revenue and costs are not to be recognized on financial statements as income and expense until the job is complete, or in some cases as certain milestones are completed for the job.  Many engineering firms, attorneys and other similar organizations like to use work in progress (WIP) accounts as well.

The procedure described here for handling work in progress (WIP) or construction in progress (CIP) in QuickBooks assumes that all revenue and costs will be tracked as assets (for costs) and liabilities (for revenues) until the end of the job, when they’ll be transferred to income and expense accounts.  

1.    Set up a new account called Work in Progress or Construction in Progress—go to Lists > Chart of Accounts, click the Account button and select New.  Select Other Current Asset for the account type.

2.    Go to Lists > Item List and change the expense account on your service items to the asset account you set up above.  If you don’t see an expense account, click the button next to This item is used in assemblies…”

3.    Add two Other Charge items:

a.    Transfer out of WIP – with WIP as the account and note in the description that the amount should be positive
b.    Transfer into COS – with COS as the account and note in the description that the amount should be negative

4.    Make sure to always use the Items tab instead of the Expenses tab on all your transactions

5.    If you use Job Profitability reports, modify/filter them to include your WIP account.  Click on Modify Report, select the Filters tab, select Account, select Multiple Accounts, check All income and expense accounts and your WIP account.  Memorize the report.

6.    Create a report to track the amount in WIP by job by going to Reports > Custom Summary Report.  Click on Modify Report, select Display Columns = Account List and Display Rows = Customer.  Click on the Filters tab, select Account = your WIP account.  Memorize the report.

7.    Once the project is completed, prepare an invoice or sales receipt with a line for the sales price (mapped to an income account) and then add the two other charge items you created above making sure to use a negative amount for Transfer into COS. Once done, the ending total for the invoice should match the sales price.

Get free QuickBooks support and training!
LinkedIn   Google+   FaceBook

This article is provided for informational purposes and is not intended to be construed as legal, accounting, or other professional advice. For further information, please consult appropriate professional advice from your attorney and certified public accountant.

Ruth Perryman - QuickBooks Specialist Written by +Ruth Perryman

Ruth is the an Intuit Premier Reseller that offers great deals on QuickBooks POS and QuickBooks Enterprise. She has provided expert QuickBooks help to thousands of businesses all over the world since 1996.

Visit our webstore for great deals on QuickBooks and QuickBooks POS!

17 Responses to How to Handle Work in Progress (WIP) in QuickBooks for Contractors

  • I use the WIP by customer/job report all the time. The totals of the customer/job balances at the end of the report should equal the WIP balance sheet total on the same date. If the B/S and the WIP report do not tie, it is likely because there are WIP transactions without an assigned customer/job. There is a report available in some QB versions called “Expenses not assigned to job” or something like that. That report by default shows you transactions in ALL accounts not assigned to jobs, so you must filter to show WIP transactions only. In theory, the total WIP transactions not assigned to jobs, plus the WIP by customer/job report total, will equal the balance sheet WIP total as of the same date. I have usually found this to be the case.

    But today, the totals from my two reports are coming up $30k short of my balance sheet WIP balance. I do not understand how this is happening. Are there certain types of transactions that will not be picked up by these two reports collectively? Any ideas?


    • I figured it out – the Expenses Not Assigned to Jobs report shows only transactions involving a “Vendor” name type, and excludes “Customer” and “Other” name types.

      To find the remaining discrepancy transactions:

      I double-clicked on my balance sheet WIP total, changed the date range to the period I knew my discrepancy was created in, and applied the filter Name>>All Other Names & checked those transactions for missing customers/jobs. Between the transactions found by the Expenses Not Assigned to Jobs report, and these “Other Name” transactions, I found all of the transactions affecting my WIP balance that were missing customer/job. If I’d still had a discrepancy, I would have changed the Name filter to “All Customers” and seen if there were any WIP transactions without jobs in that report. My WIP by customer/job report now matches the WIP balance on my balance sheet. Hooray.


      • Hi Bryan,

        Filtering for All Other Names will only work if you used an Other Name on the purchase transactions.

        Instead, I’d add a Source Name column to your reports. On purchase transactions, the two names shouldn’t be the same unless you paid a customer.

  • I have a new client who is builds homes and gets HUD payments not sure if you know what those are. This is new territory for me so I am searching for what he is trying to accomplish and your blog on “How to handle WIP” I think is what he needs. They currently do journal entries to COGS and asset accounts to close out when the job is closed. Question his goal is to see reports of his Budget versus actual, He presently does excel budgets of each house and I am trying to get him to do those in QB as estimates. Any suggestions of how he can get these reports and how I can convince him QB can accomplish this for him.

  • Dear Miss Ruth Perryam

    How we can manage the manufacturing/Process accounting in the Quickbooks.
    the example is as under

    Product A
    Product B
    Product C

    Product D-Process1 A+B+C

    Product E Process 2 Product D+Product F
    Product F

    How can we avalueate the Qty and amount in Process D & Process E in Quickbooks

    Riaz Anjum

    • Hi Riaz,

      You use assembly items to combine individual items into a new inventory item. Unfortunately, it’s not available in QuickBooks Pro so you’ll need to upgrade to QuickBooks Premier if that’s what you’re using.

  • I want to create an estimate vs actual report. All of my items are pointing to Construction in Progress for the cost side and Deferred Revenue for the “income” side; but even when I filter the report for multiple accounts to pick these costs up from the estimate they are not appearing on the report. Any ideas?

    • Hi Barbara,

      The Estimates vs. Actuals reports show the name of the items, not the G/L account the items are mapped to.

      You can create a custom transaction report filtered for these two accounts. I’d also total the report by customer.

  • How do you get your contract amount in there & to show up on your reports if you are not billing until job is complete? Do you create a estimate for the contract amount for each job in QB?

    • Hi Serena,

      If you want the contract amount to show up on your Job Estimates vs. Actuals reports, then you’ll need to enter an estimate for each job.

  • My client wants me to close his WIP as the job is complete. I took WIP to COGS then took Deferred Income to Income the Balance Sheet looks good, but I have negative amounts that are job related on my P & L report in my Remodel Income account and Deferred remodel account.

    What would have caused this?

    Is this the correct way to close out the job? (WIP to COGS then took Deferred Income to Income). Or is there another entry to fix the P& L?

    • Hi Raina,

      WIP is an asset account, deferred income is a liability account. You shouldn’t have a deferred income account on the Profit & Loss at all.

      When you transfer WIP, you credit the asset account and debit COGS. When you recognize deferred income, you debit the liability account and credit a revenue account.


  • I have customer that we will start the work around July, I will like to show this up on the balance sheet, and when we start the job take the wip and zero it out. Do you do journal or estimate?

  • We are evaluating a software for solution for an asphalt and rock crushing facility
    located in both WA and OR state (2) locations. The main concerns are with
    over/under billing, WIP and payrolls for mulit state.
    Any suggestions are appreciated. I have been working with QB’s for nearly 8 years
    in the construction and estate wine businesses as a consultant.
    Richard Fettkether

    • Hi Richard ~QuickBooks can handle multi-state payroll, but unfortunately it doesn’t handle over/under billing or WIP automatically. You can map your items to a balance sheet account like WIP, but you’ll have to manually transfer it to COS. If you enter estimates, you can download the Job Estimates vs. Actual report to help with your over/under billing calculation but once again the adjustment needs to be manually entered.