What are over billings?

Definition

Over billings are the gap when invoices on a job run ahead of the work that has been earned. On the books, that gap is a current liability, not extra profit.

You billed more than the job has earned so far. The remaining work is still yours to finish.

On the accrual basis, revenue follows how far the job has gone, not the face of the last bill. Billing more than that earned amount does not raise the Income Statement.

On cash-basis books, many shops never post this line. They record the sale when cash arrives, so billed-versus-earned never appears as a liability.

Where it shows up

Balance Sheet: Located in the current liabilities section.

P&L: Related to revenue earned, which is smaller than what was billed.

Cash flow: Related to the cash that already came in on that excess bill.

See also: Work In Progress Schedule · Percentage Of Completion · Deferred Revenue

When you look at your Balance Sheet, this line sits in current liabilities, near other amounts you still owe. It is the billed-ahead gap on open jobs, not a vendor bill.

When the balance is high, customers have been invoiced well ahead of the work. When it is low or zero, billing and earning are close, or the jobs have caught up.

The Income Statement does not list this gap as a line. Related revenue is the earned amount, which is smaller than what was billed.

On the Statement of Cash Flows, the excess bill may already have collected. Cash flow from operations can look strong while you still owe the remaining work.

This page stays on the excess billed. The schedule that compares cost in, earned, and billed is a different report.

How it works

A long job is billed in stages as work moves. Each stage bill raises billings and a receivable, even if the job is not finished.

Earned revenue is a different number. It follows how far the job has actually gone, often cost incurred divided by total estimated cost.

When billings are larger than earned revenue, the difference is this liability. The books reclassify that excess out of billings and into current liabilities.

The work-in-progress schedule is where the two numbers sit side by side. Each open job shows cost in, percent done, earned, billed, and the over or under gap.

Deferred revenue is a cousin: cash collected before the work is delivered. This line is billed ahead of earned revenue, whether or not the cash has arrived.

When the job catches up, earned revenue rises and the liability falls. When you bill again ahead of the work, the liability grows.

If the job finishes and all remaining revenue is earned, the gap goes to zero. There is nothing left to hold as a billed-ahead liability.

Job costing keeps the cost and billing by job so this gap can be computed. Without job-level numbers, billed-versus-earned is a guess.

A high reading can also mean the contract lets you bill a large deposit up front. The liability is still the excess of billed over earned, even if that deposit was allowed.

Stay on the excess billed. The opposite gap, when earned work has not been invoiced, is a different page.

Example

A kitchen remodeler billed $30,000 on a job that has earned $22,000. Billings exceed earned revenue by $8,000.

The books record:

Debit: Billings $8,000

Credit: Over billings $8,000

Current liabilities go up $8,000. The Income Statement still shows only the $22,000 earned, not the $30,000 billed.

If the homeowner already paid the $30,000, cash is in the bank. That cash is not extra profit; $8,000 of work is still owed.

Next month cabinets go in and earned revenue rises to $30,000. The $8,000 liability falls to zero because billing and earning now match.

If the remodeler then bills another $10,000 while earned revenue is still $30,000, a new $10,000 liability appears. The pattern repeats until the job is done.

The Balance Sheet holds the gap until the work catches up. The P&L never treated the extra $8,000 as a sale.

Common mix-ups

This gap is not extra profit. Billing ahead of the work creates a liability; profit is the earned amount minus cost.

This gap is not the same as deferred revenue. Deferred revenue is cash collected before delivery; this line is billed beyond earned, even if the customer has not paid yet.

This gap is not the same as under billings. Under billings is earned work that has not been invoiced yet, which is an asset, not a liability.

Related terms

• Work In Progress Schedule: The job-by-job schedule comparing cost incurred, revenue earned, and amounts billed.
• Under Billings: Revenue earned on a job that has not yet been billed.
• Percentage Of Completion: Recognizing revenue in proportion to how much of a job is finished.
• Deferred Revenue: Cash collected from customers before the work is delivered.
• Progress Billing: Invoicing a customer in stages as work is completed.
• Current Liabilities: Obligations due within the next twelve months.
• Job Costing: Tracking revenue and cost for each individual job, project, or order.
• Contract: The binding agreement that sets what will be delivered and what will be paid.