Structure First · Cheat Sheet

WIP Accounting in Project Businesses

Balance sheet and P&L in each project phase: what changes and why

The Core Principle

Costs arise during the project duration; revenue arises only upon formal client acceptance. The WIP accounting adjustment neutralizes the monthly expense by activating the service rendered but not yet accepted as an asset (work in progress) on the balance sheet. Without this entry, the monthly management accounts show false losses during the project and a distorted profit spike at acceptance.

The Three Phases

Phase 1

Project Duration

Balance Sheet

↑Work in progress (WIP) increases by the capitalized costs

P&L

↓Costs (personnel, materials)

↑WIP adjustment (build-up)

–Result: 0

Phase 2

Acceptance & Invoice

Balance Sheet

↓Work in progress (WIP) fully released

↑Receivables from the final invoice (less advance payments received)

P&L

↑Revenue (final invoice)

↓WIP adjustment (release)

↑Gross profit visible

Phase 3

Payment Receipt

Balance Sheet

↓Receivables cleared

↑Bank / cash increases

P&L

–No change. P&L is closed.

Monthly Result in the Management Accounts: Example EUR 300,000 Contract, 3-Month Duration

Month	With WIP Accounting ✓	Without WIP Accounting ✗
January	EUR 0	-EUR 75,000
February	EUR 0	-EUR 75,000
March	EUR 0	-EUR 75,000
April ★	+EUR 75,000	+EUR 300,000

★ April = Month of acceptance and final invoice

Key Takeaways

Phase 1: Costs run; the WIP build-up keeps them out of the P&L. Phase 2: The WIP release acts like a cost in the P&L and is set against the revenue from the final invoice. Only then does gross profit become visible.
Profit arises at acceptance. Liquidity arises at payment receipt.
The balance sheet position “Work in Progress” (current assets) shows the earned, not yet invoiced value of the project portfolio.

structure-first.deFull article with interactive example: structure-first.de/en/insights/bestandsveraenderungen-projektgeschaeft© Structure First