Work-In-Progress Inventory (WIP) Definition
Define WIP In Simple Terms
Work-in-progress, or WIP, is a production term describing goods that are partially finished and awaiting completion.
It refers to the costs of raw materials, labor, and overhead incurred at various stages of production.
It is recorded as a component of the inventory asset account on a company’s balance sheet, with the costs being moved to the finished goods account and then to the cost of sales upon completion and sale, respectively.
While a WIP, the costs are considered a current asset.
WIP Inventory Example
WIPs are particularly common when manufacturers produce large or custom made products with a long production period.
It accounts for the changing value of products during intermediate stages of production over several accounting periods.
However, WIPs are also used by manufacturers of smaller products to account for inventory that is unfinished at the time of reporting.
Because it is difficult to estimate the value of a product at an intermediate stage of production, it is common practice for manufacturers to try and reduce the WIP inventory as much as possible before reporting.