In 2026, many service-based businesses (architects, engineers, builders) struggle with "feast or famine" profit and loss statements. One month looks like a massive profit (when the final invoice is sent), and the previous month looks like a huge loss (when the wages were paid). The solution is **WIP Accounting.** If you aren't tracking your Work in Progress, you're missing the true financial story of your business.
Work in Progress (WIP) is the value of inventory or services that is currently being worked on but is not yet complete. For a manufacturer, this might be the cost of the steel that has been cut but not yet assembled. For a professional service business, it is the hours of billable time that your staff has logged but not yet invoiced to the client.
The ATO generally expects larger businesses to record WIP at the end of the financial year. If you have **hundreds of hours** of unbilled work, its value must be recorded as an asset. Failure to record WIP can artificially lower your profit, which the ATO might challenge in an audit if they see a large "stock" of unbilled projects.
Most modern project management software (like WorkflowMax, Procore, or Xero Projects) will automatically calculate your WIP for you. The basic "WIP formula" is:
⚠️ Note: The "Value" of WIP for tax purposes is usually the **cost** of the labor and materials, not the final **sales price** you intend to charge. Your accountant can help you determine the correct valuation.
Tracking WIP allows you to see the real profitability of your business month-by-month, regardless of when you send the final bill. It gives you the confidence to know you're making a profit, even if your bank account is temporarily low. At PrepMyBook, we specialize in "WIP Reconciliations" for professional firms. Let's make 2026 your most data-driven year yet.
Our project accounting specialists can help you set up and reconcile your WIP every month, ensuring your P&L is accurate and your tax is compliant. Let’s get your project data right.
Talk to a Project Accountant