Understanding Negative Work in Progress (WIP): A Guide for Builders

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What Is Negative WIP?

Negative Work in Progress (WIP) occurs when you have invoiced more than the value of work completed to date. This means you are ahead on billing, and it creates a liability rather than an asset on your balance sheet.

This situation is common in construction and professional services industries and may also be referred to as:

• Unearned revenue
• Overbilling
• Deferred income
• Contract liability (under AASB 15)

Example

Contract value: $1,000,000
Work completed to date: $300,000
Invoice issued: $400,000
Negative WIP: $100,000 (you’ve billed $100,000 more than work performed)

Accounting Treatment

Negative WIP is reported as a liability on the balance sheet because you’ve received payment (or expect to) for work that has not yet been performed. Under AASB 15, this would be classified as a contract liability.

Accounting Summary:

Why It Matters

1. Cash Flow: Negative WIP often indicates strong cash flow—you’ve been paid in advance.
2. Gross Profit: It can distort gross profit margins if revenue is recorded ahead of actual work performed.
3. Tax and Compliance: Revenue must be recognised in line with work performed, not billing alone.

Common Scenarios Creating Negative WIP

• Progress claims invoiced up front
• Deposits payments
• Delays after early invoicing
• Overbilling in early stages of fixed price contracts

Final Thoughts

Negative WIP isn’t inherently bad—it can reflect effective billing and healthy cash flow. However, it must be properly managed to ensure financial reports reflect the true performance of the business. Accurate tracking under AASB 15 ensures revenue aligns with work completed.

Need help reviewing your WIP schedules or understanding contract revenue recognition? Get in touch with our team today.