Work in progress (onderhanden werk)
Work in progress (onderhanden werk) concerns assignments or production not yet completed at the balance sheet date. Valuation and revenue recognition depend on the contract and the applicable reporting rules.
What does work in progress mean?
Work in progress (onderhanden werk) concerns assignments or production not yet completed at the balance sheet date. Valuation and revenue recognition depend on the contract and the applicable reporting rules.
Work in progress concerns assignments or production still running. Valuation differs by contract type and applicable reporting rules; a general percentage of completion is not always enough. Losses on assignments are assessed in time.
How does it work?
The law names work in progress as part of inventories (art. 2:369(b) DCC). The guidelines make a distinction that determines the valuation. Semi-finished goods and products in process that you make at your own risk fall under RJ 220: they are on the balance sheet at production cost or lower net realisable value and give revenue only on sale. A project on behalf of a third party falls under RJ 221, in which revenue and costs are recognised in proportion to the performance delivered. Micro and small entities follow RJk B5.3 and choose between profit in proportion to progress and profit on completion; under the latter, revenue during the project equals the costs that are probably recoverable (RJk B5.308 and B5.313).
If the outcome of a project cannot be estimated reliably, revenue is recognised only up to the amount of the costs incurred that can probably be recovered. An expected loss is recognised immediately and in full. The current RJ 221 applies to reporting years from 1 January 2025.
Example
A contractor (BV) builds an industrial hall for a fixed price of € 500.000; budgeted costs are € 400.000. On 31 December 2026, € 160.000 of costs have been incurred, 40% of the budget. Revenue 2026: 40% × 500.000 = € 200.000; result € 40.000. € 150.000 has been invoiced in instalments. On the balance sheet the project stands at 200.000 − 150.000 = € 50.000 as an asset. Had € 230.000 been invoiced, € 30.000 would have stood under current liabilities. If the cost budget rises to € 520.000, the whole loss of € 20.000 is recognised at once.
In the annual accounts
Inventories/receivables or project-related items and P&L; notes for significant contracts.
Difference from invoiced instalments
What you invoice the client in instalments follows the payment schedule in the contract. What you take as revenue follows the progress of the work. If invoicing runs ahead of the work, you have a liability; if it lags, an asset. Invoiced is therefore not the same as earned.
Common mistakes
- Equating the invoiced amount with earned revenue
- Postponing an expected loss
What to watch for
- Substantiate progress per project with a current recalculation and a forecast of the costs still to be incurred.
- Assess per project whether a loss is expected; offsetting against a profitable project hides it.
- Micro and small entities may apply tax-based accounting policies (art. 2:396(6) DCC). For tax too, work in progress is valued at the part of the agreed compensation that is attributable to it (art. 3.29b Income Tax Act 2001 (Wet IB 2001)).
Legal basis and source
art. 2:369(b) DCC; RJ 220 and RJ 221
Frequently asked questions
How do I determine the percentage of completion?
Usually by dividing the project costs incurred by the total budgeted costs.
What if the client has not yet approved additional work?
Then the additional work counts in project revenue only if it is probable that it will be reimbursed and the amount can be determined reliably. The costs of it are already project costs.
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Preparing Dutch annual accounts?
Your first set of annual accounts is free, for every size class. Create an account and prepare the annual accounts of your Dutch company under Title 9 of Book 2 of the Dutch Civil Code.
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