In general, the terms "work in progress" and "work in process" are used interchangeably to refer to products midway through the manufacturing or assembly process. Most commonly referred to as "work in progress," it represents one of several production stages that must be carefully monitored to ensure that a business runs smoothly.
In corporate finance, the concept of work in progress constitutes part of the assets section on the balance sheet. The work in progress figure reflects only the value of those products in some intermediate production stage. This excludes the value of raw materials that have not yet been incorporated into an item for sale. Work in progress also excludes the value of finished products being held as inventory in anticipation of future sales.
For many businesses, inventory management is a crucial part of maintaining a profitable business model. By its very definition, work in progress is a fluid figure that requires a great deal of complicated calculation to determine the amount of work already completed on a given item, and then assigning it an appropriate valuation. Many companies try to reduce or eliminate any work in progress inventory before the end of each reporting period to simplify the accounting. Without work in progress, inventory assets are either finished products or raw materials, which are much easier to quantify.
Some people differentiate between work in progress and work in process based on the duration of the production cycle. For some, work in process refers to products that move from raw materials to finished product in a short period, such as manufactured goods. Work in progress, conversely, is sometimes used to refer to assets that require a considerable amount of time to complete, such as consulting or construction projects. However, this differentiation is not the norm, and either term can be used to refer to unfinished products in most situations.