Bill Patrick, of William J. Patrick, Bird in Hand, Pa., adjusts his profit and loss statement using a figure he calculates every month from his work-in-progress form. With this figure, he has a more accurate look at how his business is doing. Because he sees this report monthly, it also allows him to take care of problems in a timely manner. To calculate the "contract adjustment," his accounting consultant, Greg Morley, creates a worksheet of "over billings" (or prepaid receivables) and "under billings." He lists every job that has any activity against it. "Job by job, [Morley] looks at what is being collected and comes up with the percentage of the job that is delivered to the customer and the value of what is installed and completed against the receivables from that job," Patrick says.

Morley and Patrick add up the net over billings and under billings for all the jobs and adjust the monthly profit and loss statement using that amount. Currently, Morley creates the work-in-progress report using figures from the company's QuickBooks program. Patrick and Morley are trying to find a way to automate the analysis.

WIP Analysis
The underbilled or overbilled figure is calculated by subtracting billed amount from the job to date build/design value. Column C - E = under or over billed amount.
Net overbilling or adjustment to revenue is (44,638) overbilled - 3,638 underbilled = (41,000)
* The Johnson job shows a typical scenario where there is no activity against the job, except for the $20,000 deposit received.
Profit and Loss Statement
Add the contract adjustment to your profit and loss statement to create a more accurate figure on where your company stands.
Gross Revenue
Contract Adjustment
Net Revenue
(Less) Cost of Good Sold
Gross Profit
(Less) Overhead
Net Profit