Work-in-Progress
The phrase work-in-progress refers to an item that isn’t ready to meet its customer as it isn’t finished yet. A shortened phrase for the term is a WIP. The term usually applied to things like raw material, costs, labor at distinct steps of the production process. Normally, work-in-progress becomes an element of the statement of financial position (balance sheet). Later the cost of sales will comprise that cost.
Work-in-progress conveys the value of middle steps in producing products, not including the value of raw materials and the future value, which appears only after the production of an item is finished.
Work-in-Progress in process of production
Work-in-progress is a view on the process of production that refers to costs for moving from one stage to another. The balance in that idea means all money that is spent on partially finished items. Production costs are costs that comprise raw material, labor of employees that work on the production and expenses not directly attributed to creating a product or service.
When the production of an item involves several materials, some of materials, especially those, that are needed at later stages, may be excepted from the labor costs. Labor cost that time takes into account costs that are needed for using equipment, these costs are included in WIP. Then when the time for the excepted material comes, its costs move from WIP to finished goods and both accounts become parts of the inventory account. The next stage is moving inventory to COGS (cost of goods sold) when finished goods go on sale.
Parts of inventory may be called a WIP in case they’re related to human labor, but these parts haven't met the expected result yet. To be more precise, the process of work has started, but not all stages are finished, thus, an item can’t be called a final product. Ways of defining how to account work-in-progress may differ from one company to another.
Understanding these ways of measuring is essential for investors, as they may be extremely different in companies. The most common way is to minimize the quantity of work-in-progress inventory before it’s required to report as it’s quite hard and in some cases takes too much time to make an assessment of the percentage of completion.
Work-in-Progress in accounting
In accounting WIP is used to define products that are half done. The accountants’ work is to assess the quantity of such goods, for this purpose they take into account labor, raw material, overhead cost and determine their percentage. Raw materials costs are the first cost to incur as raw materials are needed in the early stages.
Job costing calculates all costs, profits of every particular work. Thus, it allows accountants to track costs and then meticulously analyze the results to figure out if some expenses can be reduced. This kind of process costing is quite different from the one that is used to estimate a distinct customer's job. For instance, when a firm provides some repairing work, every product to repair can’t have the same costs as hours needed to repair are different as well as material. Thus, the expenses list comprises materials, labor and hours.
It’s worth noticing that the costing system usually monitors accumulation and allocation of costs that are related to the manufacturing of similar goods.
Work-in-Progress or work-in-process
For most situations work-in-progress and work-in-process are synonymous descriptions. The concept work-in-progress pictures an unfinished item as well. However, sometimes there are slight differences in usage. Work-in-process in some cases means that the time spent on producing was short. Work-in-progress, in turn, refers to assets that require much more time to complete. The difference isn’t established, thus, both terms may be utilized to define partially finished goods.
Work-in-progress or finished goods
The estimation whether the product may be referred as work-in-progress or a finished one can be done by a product’s saleability. If a product is ready to be sold, then it’s finished goods, in case a product requires more changing and extra work, it can be defined as work-in-progress.
However, there is no unified standard to assess whether a product is complete or not as each company has its own standard for such assessment. Thus, it would be wrong to create such a standard. For instance, for a fabric factory finished goods are fabric, however, for a toy factory it isn’t finished goods.
