A:

Work in progress, also known as work in process, is usually measured and categorized as a current asset or a long-term asset on a company's balance sheet, depending on how the asset will be used.

Work in Progress

Work in progress can be thought of as inventory still on the factory floor. Manufacturing the goods has started but has not yet been completed and can't be categorized as inventory or finished goods.

Work in progress inventory is more valuable than raw materials that have yet to be put into manufacturing use, but it is not more valuable than a company's finished goods or finished inventory ready for sale. In essence, work in progress inventory is the middle stage of the production process between raw materials and the finished product.

Accounting for Work in Progress on Financial Statements

Work in progress inventory is accounted for as an asset on a company's balance sheet, similar to raw materials or inventory. The general ledger account used to track work in progress is the work in progress inventory account.

All costs associated with the work in progress inventory is taken into account, including raw materials cost, direct labor costs and factory overhead costs. When accounting for these costs in the work in progress inventory asset account, an accountant would assign all raw materials associated with the work project, compile all labor costs associated with the work done on the work in progress inventory, assign any overhead costs associated with it and then record the asset entry as a summation of these costs.

RELATED FAQS
  1. What is the difference between work in progress (WIP) and raw materials in accounting?

    Learn about the difference in inventory financial accounting between works in progress and raw materials, as reported in ... Read Answer >>
  2. Why is work in progress (WIP) considered a current asset in accounting?

    Find out why accountants consider work in progress (WIP) to be a current asset on the balance sheet for financial accounting ... Read Answer >>
  3. How Do I Calculate The Inventory Turnover Ratio?

    The inventory turnover ratio is a key measure for evaluating how effective a company's management is at managing inventory ... Read Answer >>
  4. What are the generally accepted accounting principles for inventory reserves?

    As with most matters related to generally accepted accounting principles (GAAP), accountants assigned with the task of applying ... Read Answer >>
  5. What are the components associated with working capital management?

    Learn what the three main components of working capital management are and how each is significant to efficient financial ... Read Answer >>
  6. What is the formula for calculating inventory turnover?

    Learn about the inventory turnover ratio, how it is calculated and what this efficiency metric tells businesses about their ... Read Answer >>
Related Articles
  1. Investing

    Inventory Valuation For Investors: FIFO And LIFO

    We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line.
  2. Investing

    Understanding Periodic vs. Perpetual Inventory

    An overview of the two primary inventory accounting systems.
  3. Investing

    AR & Inventory Turnover Is Key For These Sectors

    Accounts receivable and inventory turnover are two important ratios in the current asset category. We will also discuss the key industries that benefit from a thorough understanding of these ...
  4. Investing

    Advantages of Maintaining Low Working Capital

    Understand the benefits and advantages of maintaining low working capital as related to liquidity needs, capital allocation and operational efficiency.
  5. Investing

    Why It Is Important to Follow Crude Oil Inventories

    Discover what oil inventories are, how they are communicated and what important insights they provide into the state of the oil market.
  6. Investing

    Reading the Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  7. Investing

    Progress Software's Uncertain Ride Continues

    Examine Progress Software's fundamentals as it transitions through acquisition and restructuring.
  8. Investing

    Uncovering Oil And Gas Futures

    Find out how to stay on top of data reports that could cause volatility in oil and gas markets.
  9. Investing

    Key Financial Ratios for Manufacturing Companies

    An investor can utilize these financial ratios to determine whether a manufacturing company is efficient, profitable and a good long-term investment option.
RELATED TERMS
  1. Work In Progress - WIP

    Material that has entered the production process but is not yet ...
  2. Raw Materials

    Raw materials are commodities companies use when producing or ...
  3. Perpetual Inventory

    A method of accounting for inventory that records the sale or ...
  4. Average Inventory

    A calculation comparing the value or number of a particular good ...
  5. Obsolete Inventory

    Obsolete inventory is a term that refers to inventory that is ...
  6. Inventory Write-Off

    An inventory write-off is an accounting term for the formal recognition ...
Hot Definitions
  1. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  2. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  3. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  4. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  5. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
  6. Interest Coverage Ratio

    The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest ...
Trading Center