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The owner's glossary

WIP overbilling and underbilling

A construction work-in-progress schedule compares earned revenue with billings on unfinished jobs. Overbilling means billings exceed earned revenue; underbilling means earned revenue exceeds billings. Under a cost-to-cost illustration, progress depends on costs incurred relative to estimated total costs, so estimate changes can move these balances without any new cash receipt.

Updated

Illustrative completion fraction = costs incurred to date ÷ latest estimated total cost (estimated cost must be positive)

Illustrative earned revenue = contract value × completion fraction

Overbilling = max(cumulative billings − earned revenue, 0)

Underbilling = max(earned revenue − cumulative billings, 0)

Examples use made-up numbers. Education only, not tax, legal or investment advice.

Example

The setup

  • Example company: Ridgeline Builders Co. (fictional).

  • Illustrative example.

The math

  1. Existing fictional Ridgeline Hillside remodel: $150,000 ÷ $300,000 = 50% complete; $400,000 × 50% = $200,000 earned; $155,000 billed gives $45,000 underbilling.

  2. Main St. addition: $270,000 ÷ $450,000 = 60%; $600,000 × 60% = $360,000 earned; $420,000 billed gives $60,000 overbilling.

What it tells you

  • Report both gross balances rather than hiding them in a $15,000 net figure.

  • Billings here are cumulative gross amounts, before retainage; collections are not supplied.

Your next step

What would change your next decision after you check this against your own records?

Educational content, not tax, legal, accounting or investment advice.

Questions owners ask

Is overbilling extra profit?

No. It is a timing difference between billings and earned revenue, not additional margin. It also does not prove the customer has paid the invoice.

Is underbilling the same as an overdue invoice?

No. Underbilling compares earnings with billings. An overdue receivable is an amount already billed but not paid by its due date.

Can every job use cost-to-cost accounting?

No. This is an illustrative progress method, not a universal tax or financial-reporting rule. Confirm the applicable contract, recognition method and treatment of costs that do not depict progress; revise estimates and assess losses when needed.

Sources