Work in Progress vs. Work in Process: An Overview

Work in progress describes the costs of unfinished goods in manufacturing, while work in process refers to goods materials that are turned into goods in a short time period.

The terms work in progress and work in process are used interchangeably to refer to products midway through the manufacturing or assembly process.

Work in Progress

Work in progress, also referred to as WIP, is a term used in supply-chain management to describe the costs of unfinished goods in the manufacturing process. These costs include raw materials, labor, and overhead costs.

Many companies that manufacture very large items use a WIP inventory system. This is also referred to as a job costing system. The cost of the raw materials accumulated for the work in progress is listed in the jobs account ledger.

[Important: Work in progress can also be called in-process inventory.]

It is also used in the construction industry, where companies calculate the proper billing time when the contract calls for percentage completion billing. So a construction company will bill its client at various stages of the project. So, for instance, Construction Company X may send an invoice when it hits 25% completion, 50% completion, 75% completion, and finally, at 100% completion. The billing amount is determined in the contract.

The work in progress is one of the components found on a company's balance sheet. The WIP figure reflects only the value of those products in some intermediate production stage. This excludes the value of raw materials not yet 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.

Many companies try to reduce or eliminate any work in progress inventory before the end of each reporting period to simplify accounting. Without work in progress, inventory assets are either finished products or raw materials, which are much easier to quantify.

Work in Process

Work in process represents partially completed goods. These goods are also referred to as goods-in-process.

For some, work in process refers to products that move from raw materials to finished product in a short period. An example of a work in process may include manufactured goods.

Work in progress, as mentioned above, is sometimes used to refer to assets that require a considerable amount of time to complete, such as consulting or construction projects. This differentiation may not necessarily be the norm, so either term can be used to refer to unfinished products in most situations.

This inventory is found on a manufacturing company's balance sheet. This account of inventory, like the work in progress, may include direct labor, material, and manufacturing overhead.

Key Takeaways

  • Work in progress is the cost of unfinished goods in the manufacturing process.
  • Work in process is the term used to describe partially completed goods, which are typically turned from raw material to finished product in a short period of time.
  • The figures for both work in progress and work in process are listed on a company's balance sheet.