TL;DR: WIP accounting is how architecture practices recognise fees earned but not yet invoiced. In a stage-fee model, time and costs build up against each RIBA stage before the milestone invoice goes out. That gap between work done and work billed is work in progress. Get it right and your balance sheet, P&L, and cash forecast tell the truth. Get it wrong and losses surface weeks after you could have acted.
A practice is six weeks into Stage 3 on a residential scheme. The team has logged 60 hours. The stage fee is £8,000 and the invoice won’t go out until the client signs off. In their accounts: nothing. No revenue recognised, no WIP entry, no record that those 60 hours have any financial value yet.
That’s the WIP accounting problem in architecture. Unlike a product business that recognises revenue when goods leave the warehouse, an architecture practice earns fees progressively against RIBA stages. Time and costs accumulate against each stage; invoices follow later, at sign-off milestones. That gap between work done and work billed is work in progress.
This post covers the definition, the balance sheet treatment, what the revised FRS 102 now requires, and what a good monthly WIP review looks like.
What Is WIP Accounting for Architecture Practices?
WIP accounting, or work-in-progress accounting, is the process of recognising the value of work completed but not yet invoiced. For architecture practices, WIP is the gap between fees earned through time logged on a project and fees actually billed to the client. Correctly accounting for that gap determines whether your P&L and balance sheet reflect reality, or a snapshot that’s weeks out of date.
In manufacturing, WIP is physical stock part-way through production. In architecture and other professional services, it’s an accrued income figure: revenue earned before an invoice exists. As BST Global’s guide to AEC accounting explains, WIP accounting aligns revenue with costs incurred as work happens, rather than waiting for invoices or cash receipts. Xero’s guide for architecture and engineering practices describes this as a percentage-of-completion approach: if 40% of a stage’s expected cost has been incurred, 40% of the stage fee is recognisable as revenue.
Xero typically labels this “accrued income” or “unbilled receivables” depending on your chart of accounts setup. Either way, it’s a current asset, not a debtor (invoiced but unpaid), and not recognised revenue (which requires an invoice).
How WIP Builds Up Against RIBA Stages
Fees are agreed upfront, tied to RIBA stages, and invoiced at completion milestones. Meanwhile, time runs every day.
Take a Stage 3 scenario: a practice has agreed a fee of £8,000 for Spatial Coordination on a residential project. Three weeks in, the team has logged 60 hours across a project architect and two technologists at a blended charge-out rate of £95 per hour. That’s £5,700 of time logged. The stage isn’t signed off and no invoice has gone out. The WIP balance for this stage: £5,700.
Now add a variation: the client asks for layout changes outside the agreed scope. Another 12 hours logged. If that scope change isn’t raised as a variation order promptly, those hours sit in WIP with no clear path to an invoice, and will likely be written off at year-end without anyone consciously making that decision.
Menzies LLP note in their guidance on WIP accounting for architects that costs don’t accrue on a pro-rated basis across a stage, so percentage-complete estimates need input from the project lead, not just a formula based on hours alone.
Good project management for architects connects time tracking to stage budgets so this picture is visible in real time.
Is WIP a Current Asset or a Liability on the Balance Sheet?
WIP from unbilled work is a current asset on the balance sheet, usually labelled “accrued income” or “unbilled receivables.” If you’ve invoiced a client for more than the value of work done to date, the excess is a current liability, sometimes called an overbilling. Getting it wrong affects profit reporting, tax, and what your accounts show to a lender or equity partner.
The journal entry is: debit accrued income, credit revenue. When the invoice goes out, that accrued income converts to a trade debtor. When it’s paid, it becomes cash. As Accounting for Everyone’s guide on unbilled WIP notes, underbilling overstates your assets; overbilling creates a hidden liability. Each tells a different story about where the practice stands.
The accuracy of this entry depends on the underlying time data. For time tracking for architects to feed this reliably, time needs to be recorded against the right job and stage each week, not reconstructed at month-end.
The Revised FRS 102 and What It Means for Architects’ Revenue
For accounting periods beginning on or after 1 January 2026, the revised FRS 102 changes how UK architectural practices must recognise revenue. The updated Section 23 introduces a five-step model aligned to IFRS 15: identify the contract, identify performance obligations, determine the transaction price, allocate it, and recognise revenue when each obligation is satisfied.
The critical point is that RIBA stages don’t automatically qualify as distinct performance obligations. A stage is only a separate obligation if it can deliver standalone value to the client. Where stages are interdependent, revenue may only be recognisable once the combined deliverable is complete. This is a judgement call, not a formula.
There’s also a problem for practices that start work before a formal appointment is signed. Pre-contract design and feasibility work may no longer generate revenue until an enforceable contract exists. ACCA’s technical guidance on the revised standard confirms the new rules place far greater weight on whether those rights and obligations actually exist.
The downstream effects are real: timing shifts affect EBITDA, partner drawings, bonuses, and borrowing covenants. Worth working through with your accountant before the next year-end.
What Happens When Practices Don’t Track WIP
Practices that don’t track WIP systematically discover write-offs at invoice stage, not before. Time logs don’t reconcile to invoices, month-end adjustments appear without clear explanation, and the balance sheet carries accrued income that never converts to cash.
That’s not a one-off problem; it’s structural. The 2025 RIBA Business Benchmarking Report shows partners and directors spend only 47% of their time on billable work. The other 53% has to go somewhere in the WIP calculation, and without a system, it usually just disappears.
Some of that non-billable time is genuinely overhead: BD, management, CPD. But project oversight time on live jobs should be tracked against a stage budget, even if it isn’t all billed. Whether it’s recoverable is a decision; invisibility isn’t.
Without a clear WIP position per job, cash forecasting is guesswork. And over-runs only become visible at invoice stage, by which point the margin conversation is academic.
Understanding how directors actually split their time is also a capacity question. Our post on architect utilisation rates covers it.
Why Spreadsheets Break Down for WIP Tracking
The basic WIP formula isn’t complicated. As ExpandAccounts explains, for a stage-fee arrangement it’s: agreed fee × percentage complete, minus amounts invoiced. For time-based fees: hours logged × charge-out rate, minus amounts invoiced. A well-maintained spreadsheet can handle this for three or four active jobs.
The problems are operational. Costs don’t accrue pro-rata across a stage, so a percentage from hours alone often misses the real picture. Charge-out rates need staying current. Variations need capturing as they happen. The PM’s file typically reaches the finance team at month-end, already a week out of date.
The result is a WIP figure assembled from estimates of estimates, reconciled to Xero manually. If the two don’t match, someone spends an afternoon working out why.
A time-tracking system connected to the project management platform removes that chain. Time logged by the team feeds the WIP calculation automatically. The Xero integration means the journal entry is populated from live data, not rebuilt from a static file each month.
What a Monthly WIP Review Actually Looks Like
A monthly WIP review needs four numbers per active job: fee agreed, percentage of the stage complete, time logged to date at charge-out rate, and amounts invoiced to date. The difference between earned revenue (fee × percentage complete) and amounts invoiced is the WIP balance.
That balance drives three decisions: whether to raise an interim invoice, whether a variation needs documenting, and whether the job is over-running before it hits the P&L.
Monthly is the right cadence. Quarterly is too slow: a job that’s been over-running since August shouldn’t be a year-end surprise. A monthly review per active job takes ten to fifteen minutes if the data is in a system: hours against budget, completion percentage from the project lead, earned revenue versus invoiced amounts.
WorkflowMax for architects surfaces this per-job view without a separate spreadsheet. Time logged by the team updates the job cost view in real time, and the Xero integration means the accrued income figure in the accounts reflects what the system holds, not what someone calculated last Thursday.
Make WIP Work Before the Invoice Goes Out
WIP accounting isn’t a year-end exercise. It’s a real-time profitability tool. For a stage-fee practice, the gap between time logged and fee invoiced is where margin is recovered or written off, and it needs to be visible before invoices go out.
The revised FRS 102, now live for accounting periods from January 2026, adds urgency: revenue recognition is now a matter of contract structure and distinct performance obligations, not just a timing convention.
Three things to take away: make WIP entries monthly, not at year-end. Use the review to drive invoicing and variation decisions. And if your current process is a spreadsheet that reaches the accountant out of date, there’s a better setup available.
Our App Fit Sprint is a good starting point, or book a discovery call and we’ll work through it together.
