Over and under billing, walked through on the calculator

The four inputs

The calculator asks for:

1. Contract value, including signed change orders.
2. Estimated total cost at completion: cost to date plus the estimated cost to complete.
3. Cost to date.
4. Billed to date.

It then works percent complete by cost to cost, earned revenue, the over or under billing and gross profit to date. How a job is reported on your statements is for your accountant; the calculator is a study and planning aid.

Month 1

An invented job, all numbers made up:

• Contract value: $1,250,000
• Estimated total cost: $1,100,000, so expected gross profit is 1,250,000 - 1,100,000 = $150,000
• Cost to date: $440,000
• Billed to date: $560,000

The calculator's steps:

• Percent complete: 440,000 / 1,100,000 = 40%
• Earned revenue: 1,250,000 x 0.40 = $500,000
• Billed minus earned: 560,000 - 500,000 = $60,000 overbilled
• Gross profit to date: 500,000 - 440,000 = $60,000

Check the profit another way: 40% of the expected $150,000 is 150,000 x 0.40 = 60,000.

An overbilling of $60,000 means the owner has paid for $60,000 of work not yet done. It is a liability on the balance sheet because the company owes that work. A modest overbilling is normal; mobilization and early lines are often billed ahead of cost. A large one can mean the schedule of values was front-loaded, which schedule of values and pay applications explains.

Month 2: the estimate moves

A month later the project manager updates the cost to complete. Steel came in high and the crew is behind on productivity. New figures:

• Estimated total cost: $1,160,000, so expected gross profit falls to 1,250,000 - 1,160,000 = $90,000
• Cost to date: $638,000
• Billed to date: $750,000

The steps again:

• Percent complete: 638,000 / 1,160,000 = 55%. Check: 1,160,000 x 0.55 = 638,000.
• Earned revenue: 1,250,000 x 0.55 = $687,500
• Billed minus earned: 750,000 - 687,500 = $62,500 overbilled
• Gross profit to date: 687,500 - 638,000 = $49,500. Check: 90,000 x 0.55 = 49,500.

Gross profit to date went down, from $60,000 to $49,500, even though the job moved from 40% to 55%. The month's result is 49,500 - 60,000 = a $10,500 loss. That is the profit fade: the job is recognizing that it will make $60,000 less than planned. Catching it in month 2, rather than at closeout, is the reason to run this every month.

The same month as an underbilling

Suppose the company had billed only $600,000 by month 2. Then 600,000 - 687,500 = -$87,500, an underbilling of $87,500. Underbilling is an asset, revenue earned but not billed. It has two possible causes:

• Slow billing. Work is done and simply not billed yet. Fix the billing.
• A cost overrun the estimate has not caught. If the cost to complete is too low, percent complete runs ahead of the real progress, earned revenue is overstated, and an underbilling appears. The job is losing money and the books do not show it yet.

That second cause is why sureties look hard at underbillings, as the contractor financial ratios and bonding capacity guides explain.

A trap in cost to cost

Cost to cost assumes every dollar of cost is a dollar of progress. Materials delivered but not installed break that. In month 2, if $58,000 of the cost to date is uninstalled material, leaving it out gives (638,000 - 58,000) / 1,160,000 = 580,000 / 1,160,000 = 50%, earned revenue 1,250,000 x 0.50 = $625,000, and an overbilling of 750,000 - 625,000 = $125,000. Check: 625,000 + 125,000 = 750,000. Whether and how to adjust is an accounting decision for your CPA, but you should know the direction it moves the numbers.

Where this sits for the exam

The bulletin lists subject areas, not topics. Our reading puts accounting and financial management under Procurement and Contracting Requirements, the largest area. A question may give three of the four inputs and ask for percent complete, earned revenue or the over or under figure. Use the same order every time: percent complete, earned, billed minus earned.

Practice it

Take the free check. It needs no signup and explains every answer, including the arithmetic. For the Procurement and Contracting lesson and practice questions with every step worked, see the plans.

Sources

• PSI Candidate Information Bulletin 1458, content outline, updated 7 Jul 2026. Retrieved 5 Nov 2026.
• All figures are invented and were worked twice.

FAQ

Is overbilling an asset or a liability?

A liability, because the company has been paid for work it still owes. Underbilling is an asset.

How is percent complete figured for over and under billing?

On the cost-to-cost method, cost to date divided by estimated total cost at completion.

Why did gross profit to date fall when the job progressed?

The estimated total cost rose, so the expected profit fell, and the job recognized the drop in that month.