What is backlog?

Definition

Backlog is signed work that has not yet been delivered or recognized as revenue. On the books, this is a schedule of remaining promises, not a ledger account.

A renovation contractor uses it to ask how much signed kitchen and bath work is still unfinished. New signatures raise the pile, and finished rooms take work out.

The Income Statement still shows only the earned slice. Backlog is what is left after revenue recognition has taken its piece.

This figure is remaining signed work. It is not this period's new contracts by themselves.

Where it shows up

Balance Sheet: Related to deferred cash sitting on signed work not yet delivered.

P&L: Related to work that has been signed but not yet recognized.

See also: Bookings · Revenue Recognition · Sales Order

When you look at your P&L, you will not see a line titled backlog. You will see renovation income only for the rooms that were earned this period.

When backlog is high, a lot of signed work is still waiting. When it is low, the crew is close to catching the signed book, even if last month's signatures were large.

The Balance Sheet does not hold this schedule as a permanent account. Deposits on unfinished jobs sit in deferred revenue or customer deposits until the work is earned.

On the Statement of Cash Flows, collecting a deposit on a signed kitchen is an operating inflow. The remaining unbilled pile does not, by itself, move cash.

Some teams put backlog on a Key Metrics Dashboard beside bookings. That pairing is a management view, not an extra Balance Sheet line.

How it works

Start the period with the signed work that is still unfinished. That opening pile is the beginning backlog.

Add new bookings as contracts and change orders are signed. Subtract the work that is delivered or recognized as revenue, and subtract any cancelled jobs.

The ending pile is opening backlog plus new signed value minus earned sales minus cancellations. That ending figure is what you read at month-end.

A job can sit in this pile after it is billed. Unearned invoices live as deferred revenue, and the remaining work is still backlog until it is earned.

A job can sit in this pile before it is billed. The signed kitchen is already in the schedule, and the later invoice is billings, not a second add to the pile.

Do not treat this schedule as a chart-of-accounts line. You will not find it next to cash or construction income.

Do not treat this period's signatures as the whole story. Bookings are the new signed value, and this figure is what is still left.

A work-in-progress schedule is a close cousin that lines up cost incurred, earned sales, and amounts billed job by job. Backlog is the remaining signed work those jobs still carry.

Stay with the remaining pile when you read the month. The contract file explains what was signed, and this schedule explains what is unfinished.

Keep a job list that supports the number. Anyone should be able to see each signed room, what has been earned, and what is still open.

Example

A renovation contractor starts June with $180,000 of signed kitchens and baths still unfinished. That is the opening backlog.

During June the shop signs $90,000 of new jobs and change orders. It also finishes and recognizes $70,000 of work.

Ending backlog is $180,000 plus $90,000 minus $70,000, or $200,000. June bookings were $90,000, and the remaining pile is the $200,000.

If a $15,000 powder room is cancelled, that $15,000 comes out of the pile too. It is not earned sales, and it is not a June billing.

A $40,000 kitchen that was invoiced in May but is only half built is still in the June pile for the unearned half. The May invoice is old billings, not a new add.

Common mix-ups

Backlog is not bookings. Bookings are the contract value signed in this period, and this figure is the remaining unfinished pile.

Backlog is not deferred revenue. Deferred revenue is the unearned cash or invoice already on the Balance Sheet, and this schedule can also include signed work that has not been billed.

Backlog is not a ledger account. You will not find it in the chart of accounts next to construction income.

Related terms

• Bookings: The contract value signed in a period, whether or not it has been billed.
• Billings: The amount actually invoiced to customers in a period.
• Revenue Recognition: The rules for deciding when earned revenue may be recorded.
• Sales Order: The internal record of a customer's confirmed order.
• Deferred Revenue: Cash collected from customers before the work is delivered.
• Contract: The binding agreement that sets what will be delivered and what will be paid.
• Work In Progress Schedule: The job-by-job schedule comparing cost incurred, revenue earned, and amounts billed.
• Forecast: An updated projection of where the numbers are actually heading.