Don't get too excited about your income statement if you have unadjusted WIP on your books at year end. WIP needs to be adjusted by year end which could significantly change your net income.
Ex. Final balances at 12/31/X2
Underbillings: $500,000
Overbillings: 200,000
Net Underbillings: $300,000 (500,000 - 200,000)
Unadjusted balances at 12/31/X3
Underbillings: $500,000
Overbillings: 200,000
Net Underbillings: $300,000 (500,000 - 200,000)
With an unadjusted net underbilling of $300,000, you're going to decrease gross revenue by $300,000 right off the bat. This is almost like razing prior year WIP to make way for the current year WIP. Whether you reverse it entirely or just adjust it to match current year WIP, your net under/overbilling will change. On top of that, you may have a net overbilling by year end which would decrease revenue even more (you'll increase liabilities and decrease revenue).
Thanks,
Ara