Work-in-Progress (WIP): Definition & Meaning

KEY TAKEAWAYS

• You track work-in-progress (WIP) as the cost of products through the production process when they are unfinished. The data includes labor, raw materials, and overhead expenses.
• Most businesses count WIP inventory as assets on balance sheets. 
• You should minimize the value of WIP inventory for reporting at this stage. This is because it can be difficult to estimate what percentage of inventory assets are complete.
• A product that is a WIP becomes a finished good once it is ready for consumer purchase.

How to Track Works-in-Progress

Many businesses use balance sheets to track production stages. WIP data goes on your inventory asset account sheet. When you complete the manufacturing process, the data moves over to the finished goods account sheet. After the product sells, the data moves one last time to the finished goods sheet. 

WIP data is only a small portion of each balance sheet. The numbers reflect product values in a single production stage. Any raw materials that aren’t added yet will not appear on the balance sheet. Similarly, the final inventory value isn’t on the sheet yet. You add these numbers and values to future sheets. 

Real-World Example of Work-in-Progress

If a company produces kitchenware like plates and drinks, the materials go through various stages of production. First, the company has raw materials to work with. 

Next, the raw materials get melted down and molded into the cups and plates.

Then each dish gets stamped or painted with signature designs by the company. 

Finally, the products are packaged for sale. Some products may get added six to a box, while others have individual sale labels. A business can estimate the value of the WIP at each of these stages until it holds 100% value as a finished product.

Summary

You calculate work-in-progress (WIP) as the cost of unfinished products through production. You include labor, raw materials, and overhead expenses in the formula. Most of the time you consider a WIP to be an asset on your balance sheet. The product’s value as a WIP is a percentage of its final value at completion. Once it is ready for sale, a product is no longer a WIP. Instead, it becomes a finished product.

Written by Grant Gullekson

Grant Gullekson is a CPA with over a decade of experience working with small owner/operated corporations, entrepreneurs, and tradespeople. He specializes in transitioning traditional bookkeeping into an efficient online platform that makes preparing financial statements and filing tax returns a breeze. In his freetime, you’ll find Grant hiking and sailing in beautiful British Columbia. Learn more about Grant’s services at viccityaccountant.com.

Written by Grant Gullekson

Grant Gullekson is a CPA with over a decade of experience working with small owner/operated corporations, entrepreneurs, and tradespeople. He specializes in transitioning traditional bookkeeping into an efficient online platform that makes preparing financial statements and filing tax returns a breeze. In his freetime, you’ll find Grant hiking and sailing in beautiful British Columbia. Learn more about Grant’s services at viccityaccountant.com.