Construction accounting, in plain English.

The WIP schedule reconciles what you've been paid against what you've earned using the percentage-of-completion accounting method. For each job, it shows: contract value, estimated total cost, cost to date, percent complete (cost-to-date ÷ estimated total cost), revenue earned to date, amount billed, and the resulting over- or under-billing. Under-billing means you've done more work than you've billed — you're financing the job. Over-billing means you've billed ahead of work done — a form of customer financing that can flatter your P&L until it catches up.

Under POC, instead of waiting until a job is done to book revenue, you recognize revenue each month equal to (percent complete × contract value). If a $1,000,000 contract is 40% complete (meaning you've spent $400,000 of a $1,000,000 estimated cost), you recognize $400,000 in revenue that period — regardless of whether you've billed it. POC is the required method for most construction contracts under GAAP (ASC 606) and is the foundation for the WIP schedule.

On a WIP schedule, over-billings appear when billed-to-date exceeds revenue earned to date (percent complete × contract value). They are a liability on the balance sheet — the customer has paid you for work you haven't yet performed. Over-billings can improve short-term cash but they hide profit fade: the moment you have to do the work without billing for more, your P&L reveals the real margin.

On a WIP schedule, under-billings appear when revenue earned to date (percent complete × contract value) exceeds amount billed. They are an asset on the balance sheet — essentially an accounts receivable you haven't invoiced yet. Under-billings are most commonly caused by slow change order processing, missing draw documentation, or a contractor's reluctance to bill aggressively.

A standard QuickBooks chart of accounts has categories like 'Office Supplies' and 'Materials' — fine for a consulting firm, useless for a builder. The NAHB chart structures accounts around the construction process: direct construction costs (broken out by phase like foundation, framing, roofing, electrical, mechanical, plumbing, interior finishes), indirect construction costs, sales and marketing, general and administrative. Each phase can then be subdivided further by cost type (labor, materials, subcontractors, equipment, other). Jobs are tagged as classes in QuickBooks so you can run a true per-job P&L.

Every labor hour, every material invoice, every sub payment, every equipment charge, and every allocated overhead dollar gets tagged with a job number (and typically a cost code or phase) at the moment it enters the books. The result is a per-job P&L you can run any day. Most non-construction bookkeepers skip this entirely, dumping costs into generic accounts and leaving the contractor to guess which jobs made money at year-end.

A job that was bid at 22% gross margin may end at 14%. That eight-point drop is profit fade. It rarely happens all at once; it's the accumulation of small overages that don't get caught until month-end (or year-end). Common sources: labor hours blown because the crew didn't track to the estimate, material escalation between bid and purchase, owner-driven selection changes that weren't priced, and subcontractor overruns on T&M work.

If a job costs $100,000 and you apply a 25% markup, the price is $125,000 and the profit is $25,000. That profit as a percentage of the final price is $25,000 ÷ $125,000 = 20% — the margin. The formulas: Price = Cost × (1 + Markup%). Margin = Profit ÷ Price. To hit a 20% margin you need a 25% markup. To hit a 25% margin you need a 33.3% markup. To hit a 30% margin you need a 42.9% markup.

A cost code might look like 06-10-100 where '06' is the CSI division (wood and plastics), '10' is the phase (framing), and '100' is the cost type (labor). Most builders use either the CSI MasterFormat divisions or the NAHB cost code structure. Every purchase, bill, or labor entry gets coded so reports can be sliced by phase across jobs or by cost across phases within a job.

A framer earning $25/hour might actually cost the contractor $35–$37/hour fully burdened. Burden components typically include: FICA (7.65%), federal and state unemployment (varies, ~2–5%), workers' compensation (varies by trade, often 6–12% for framing/roofing), health insurance contribution, 401(k) match, vacation and holidays (~4–8%), training, PPE, and tools. Calculating burden correctly is essential for bidding — if you bid at the base rate, you've underpriced every job.

Each week you map every expected inflow (customer deposits, draws, invoice payments) and every expected outflow (payroll, subs, materials, rent, debt service, taxes, owner pay) against the current cash balance. The model rolls forward one week every Monday. Unlike an annual budget, the 13-week gives you real-time visibility — you can see a payroll crunch coming in Week 6 while it's still Week 1, giving you time to pull a draw forward, push a sub payment, or draw on a line.

On a bank-financed build, the draw schedule is negotiated before construction starts. The contractor submits draw packages (often via a platform like Built or directly to the lender) documenting the work completed and the costs incurred, and the bank disburses the draw. Each draw is usually inspected before funds release. Draw schedules commonly have 5 to 10 milestones for residential work and more for commercial.

Retainage is a standard clause in most construction contracts. For a $1,000,000 contract with 10% retainage, the customer pays $900,000 as the work progresses and holds $100,000 until substantial completion or final acceptance. The contractor is still owed the retainage — it shows as a receivable on the books — but the cash doesn't arrive until closeout, which can be months or years after the work is done. Retainage on commercial and public jobs often cascades down: the GC holds retainage from subs at the same rate the owner holds from the GC.

Change orders come from three sources: owner-requested changes (they want a different faucet), design-driven changes (the architect spotted something), and field-driven changes (hit rock, need a different approach). Best practice is to write, price, and get sign-off on every change order before the work is done. In reality, most residential contractors track them informally and lose money. Unbilled change orders are one of the single biggest sources of profit leak on residential jobs.

Lien waivers come in four types: conditional progress, unconditional progress, conditional final, and unconditional final. A conditional waiver becomes effective only when payment actually clears. An unconditional waiver is immediately effective regardless of payment. Progress waivers cover work through a specific date; final waivers cover the entire job. Most lenders, GCs, and owners require lien waivers before releasing payment.