Over and under billing calculator

Check one job on a work-in-progress schedule. Enter the contract value, the estimated total cost, the cost to date and the amount billed to date. The calculator gives percent complete by the cost-to-cost method, the revenue earned so far, and whether the job is overbilled or underbilled and by how much.

Contract, cost and billing

Contract value ($)Estimated total cost ($)Cost to date ($)Billed to date ($)

Percent complete = cost to date ÷ estimated total cost: $300,000.00 ÷ $800,000.00 = 37.5%
Earned revenue = percent complete × contract value: 37.5% × $1,000,000.00 = $375,000.00
Check: cost to date × (contract ÷ estimated cost): $300,000.00 × 1.25 = $375,000.00
Billed to date − earned revenue: $420,000.00 − $375,000.00 = $45,000.00
Result: Overbilled by $45,000.00, a liability (billings in excess of costs and estimated earnings)
Estimated gross profit on the job: $1,000,000.00 − $800,000.00 = $200,000.00
Gross profit earned to date: $375,000.00 − $300,000.00 = $75,000.00
Estimated cost to complete: $500,000.00
Share of the contract billed: 42%

Use the contract value with approved change orders, and an estimated total cost that is current: cost to date plus a fresh estimate of the cost to complete. Cost to date is the cost of work in place on the job, not what has been paid. A study and planning aid; your accountant decides how jobs are reported.

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This is covered in Procurement, contracting and running the business of the Bid Bond course.

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The formula: cost-to-cost percent complete

On jobs reported by percentage of completion, revenue is earned as the work progresses. The cost-to-cost method measures progress by the share of the estimated total cost spent so far. Billing ahead of that earned revenue is an overbilling, a liability, because the company owes the work. Billing behind it is an underbilling, an asset.

Percent complete = cost to date ÷ estimated total cost.
Earned revenue = percent complete × contract value.
Billed to date − earned revenue is an overbilling when positive and an underbilling when negative.
Gross profit to date = earned revenue − cost to date.

Worked example 1: an overbilled job

A $1,000,000 contract has an estimated total cost of $800,000. Cost to date is $300,000 and $420,000 has been billed. These are invented study numbers and the calculator's starting example.

Percent complete = 300,000 ÷ 800,000 = 37.5%.
Earned revenue = 0.375 × 1,000,000 = $375,000.
Billed − earned = 420,000 − 375,000 = $45,000 overbilled.
Gross profit to date = 375,000 − 300,000 = $75,000.

Check: each dollar of cost earns 1,000,000 ÷ 800,000 = 1.25 dollars of revenue, and 300,000 × 1.25 = 375,000. The job's estimated gross profit is 1,000,000 − 800,000 = 200,000, and 37.5% of 200,000 = 75,000, the same gross profit to date.

Worked example 2: an underbilled job

A $2,400,000 contract has an estimated total cost of $2,000,000. Cost to date is $1,300,000 and $1,450,000 has been billed.

Percent complete = 1,300,000 ÷ 2,000,000 = 65%.
Earned revenue = 0.65 × 2,400,000 = $1,560,000.
Billed − earned = 1,450,000 − 1,560,000 = −110,000, so $110,000 underbilled.
Gross profit to date = 1,560,000 − 1,300,000 = $260,000.

Check: 2,400,000 ÷ 2,000,000 = 1.2, and 1,300,000 × 1.2 = 1,560,000. The estimated gross profit is 400,000, and 65% of 400,000 = 260,000. An underbilling this size is worth a look: it can be unbilled change order work, or a cost overrun that the estimated total cost has not caught up with yet. These are original arithmetic examples, not exam questions. The job costing and overhead guide covers the job cost report behind these numbers, and bonding capacity explains why sureties read the WIP schedule.

Over and under billing questions

How do you calculate over and under billing?

Find percent complete as cost to date ÷ estimated total cost, multiply by the contract value for earned revenue, and subtract that from billed to date. A $1,000,000 contract with $800,000 of estimated cost, $300,000 of cost to date and $420,000 billed is 37.5% complete, has earned $375,000 and is $45,000 overbilled.

Is overbilling an asset or a liability?

Overbilling (billings in excess of costs and estimated earnings) is a liability, because the company has been paid for work it still owes. Underbilling (costs and estimated earnings in excess of billings) is an asset, because the company has earned revenue it has not billed yet.

Why does underbilling worry sureties and banks?

It can mean unbilled change order work, or a cost overrun the estimated total cost has not caught up with. In the second worked example a job 65% complete has earned $1,560,000 but billed $1,450,000, so it is $110,000 underbilled.

Where is this on the NASCLA exam?

The Bid Bond course teaches percentage of completion and over and under billing in its Procurement and Contracting Requirements lesson. That is the largest of the twelve subject areas on the NASCLA outline, with 31 of the 115 scored questions.

See the NASCLA exam outline for all twelve subject areas and their question counts.