Work in progress represents the costs you’ve accumulated on projects that aren’t complete yet. It sits on your balance sheet as an asset until the work is finished and you can recognize the associated revenue. Getting WIP accounting right matters because without it, your financial statements won’t reflect what’s actually happening in your business.

The basic mechanics work like this. As you incur costs on a job, those costs accumulate in a WIP account rather than hitting your income statement immediately. Materials, labor, subcontractor payments, and allocated overhead all go there. When you bill the customer and recognize revenue, you move the corresponding costs out of WIP and into cost of goods sold. This matching keeps your profit figures from getting distorted by timing differences.

In QuickBooks, set up a current asset account for WIP or Jobs in Progress. Configure your workflow so job-related expenses land there instead of going straight to expense accounts. When you invoice a customer and recognize revenue, make a journal entry moving the appropriate costs from WIP to your cost of sales. The timing of when you recognize revenue depends on your accounting method. Completed contract waits until the project is done. Percentage of completion spreads recognition across the project based on how much work you’ve finished.

For construction companies, WIP tracking is essential. You might have $200,000 in costs sitting across five active jobs, but your income statement only shows what’s been billed and recognized. Without proper WIP accounting, you could look profitable while actually accumulating losses on jobs that will blow up when they close. Construction job costing done right includes WIP tracking as a core component.

Professional services firms deal with WIP differently but the concept is the same. Unbilled time and expenses on client projects represent work you’ve done but haven’t invoiced yet. A consulting firm with 80 hours of unbilled time across open engagements has WIP that needs to be tracked and billed before it gets stale.

Review your WIP schedule monthly. Compare costs accumulated on each project against the expected total and the amount billed to date. This comparison reveals which jobs are running over budget while there’s still time to react. It also highlights unbilled work that might be forgotten or harder to collect if it sits too long.

The danger of ignoring WIP is financial statements that mislead you. You might show profitable months when you’re actually accumulating costs on jobs that will lose money once complete. Or you might look cash-poor while sitting on substantial unbilled work representing future revenue.

Setting up proper WIP tracking requires understanding both the accounting mechanics and how your specific business operates. A San Diego bookkeeper familiar with project-based businesses can configure your chart of accounts correctly and establish workflows that keep WIP accurate without creating administrative headaches. The upfront setup takes some effort, but having reliable project-level visibility is worth it.