WIP, or work in progress, represents time and effort your team has put into client projects that hasn’t been invoiced yet. For professional services firms using accrual accounting, WIP shows up as an asset on your balance sheet. It reflects revenue you’ve earned but haven’t billed. When the invoice goes out, WIP draws down and accounts receivable goes up.

The reason WIP matters is that without it, your monthly financials don’t tell the truth. Say your firm performs $40,000 worth of billable work in March but only sends out $15,000 in invoices. A cash-basis P&L shows $15,000 in revenue. An accrual P&L with proper WIP tracking shows the full $40,000. That’s a massive difference when you’re trying to decide whether to hire, adjust pricing, or evaluate project profitability.

Tracking WIP starts with accurate time tracking. Every billable hour needs to be logged against a client and project with a billing rate attached. If your team isn’t logging time consistently, your WIP balance is a guess. No amount of accounting work fixes bad time data.

Once time is tracked, the accounting works like this. As work is performed, you record a WIP entry by debiting your WIP asset account and crediting a revenue account. When you invoice the client, you reverse the WIP and move it to accounts receivable. The net effect is that revenue shows up when the work happens, not when you get around to billing.

Review your WIP aging regularly. Every two weeks is ideal. WIP that sits unbilled for 30, 60, or 90 days is a warning sign. Either someone forgot to bill, the project scope changed, or the work will end up written off. Old WIP tends to become uncollectable WIP. The longer it sits, the harder it is to send a client an invoice for work they’ve half-forgotten about.

Write-downs are part of managing WIP honestly. If someone spent 12 hours on something the client will only pay for 8, write down those 4 hours. Carrying inflated WIP makes your balance sheet look healthier than it is and delays the pain of recognizing that not all work will generate revenue.

For firms that bill on retainer or fixed-fee arrangements, WIP tracking looks slightly different. Instead of tracking billable hours against an invoice, you’re recognizing revenue as a percentage of the project completed. The concept is the same though. You match revenue to the period the work was done, not the period you sent the invoice.

Most accounting software handles WIP if it’s configured properly. QuickBooks Online with time tracking and project features enabled works for smaller firms. Larger firms sometimes use practice management software that feeds into the general ledger. The important thing is that WIP entries happen consistently and someone reviews the balances monthly.

If your firm has never tracked WIP, your financial statements have been understating or overstating revenue depending on billing patterns. Getting this right gives you a much clearer picture of what your firm actually earned each month and where profitability lives. Our Beaver Dam accounting services team works with service firms across Wisconsin to set up WIP tracking that actually reflects how the business operates, so the numbers you see each month are numbers you can trust.