Monthly close
The percent complete adjustment: turning your WIP into journal entries
A WIP schedule that never reaches the general ledger is just a spreadsheet. The percent complete adjustment is the monthly entry that carries the WIP onto your books, so revenue on the P&L reflects work performed and the balance sheet carries the right overbillings and underbillings.
Blake Richardson, Founder, KBRC · Updated
What the entry does
Your billing system records revenue as you invoice. The WIP schedule calculates what you actually earned. The percent complete adjustment is the difference between the two, posted so that:
- Gross revenue equals construction revenue billed plus the percent complete adjustment.
- The overbillings liability on the balance sheet equals total overbillings on the WIP.
- The underbillings asset on the balance sheet equals total underbillings on the WIP.
How to calculate it
The entry is driven by the change in your WIP balances since the prior close, not the balances themselves. Each month:
- Take total overbillings and total underbillings from this month's WIP.
- Compare each to the balance already on the books from last month.
- Post the change in each balance, with the offset to a percent complete adjustment line in revenue.
If underbillings grew by $30,000, you debit the underbillings asset and credit revenue. If overbillings grew by $20,000, you debit revenue and credit the overbillings liability. The net hit to revenue is the adjustment for the month.
After posting, the balance sheet contract lines should tie exactly to the WIP totals. If they do not, stop and find out why before the month closes.
Common mistakes
- Posting the full WIP balance every month instead of the change, which double counts.
- Building the WIP but never posting the entry, so the P&L shows billings as if they were earnings.
- Posting the entry once a year, which leaves eleven months of statements that the surety and bank cannot rely on.
- Leaving completed jobs on the balance sheet after the WIP has closed them out.
- Burying the adjustment in cost of sales, so nobody can see how large it is.
Keeping it in your books
The entry belongs in your own general ledger, posted by your team, so the financial statements are yours and your CPA can follow every number back to its source. A good outside process prepares the entry and the support for it. It should not reach into your books and post on your behalf.
For the WIP inputs that feed this entry, see what is a WIP schedule. For where the entry sits in the month, see the monthly close checklist.
Common questions
- Is this the same as percentage-of-completion accounting?
- It is how percentage-of-completion revenue recognition shows up in practice. The WIP schedule does the measurement and the percent complete adjustment records it. Your CPA determines the revenue recognition policy your statements follow.
- Does the adjustment reverse each month?
- Some contractors reverse and rebook the full balance; others post only the change. Both reach the same ending balances if done consistently. Posting the change is simpler to review month to month.