Work in Process – What is Work in Process?
Definition: Work in process (also known as work in progress or WIP) refers to the investment in goods that are currently in production which have not yet been completed for sale.
Work in progress refers to the materials and partially completed products which are in various stages of the production process. WIP does not include raw materials or finished products at the beginning and end of the production cycle, respectively.
During the production of goods, there may be a considerable amount of investment in work in process over a long period of time, which is why it’s important to account for.
Work in process accounting is when a company tracks the amount of WIP in their stock at the end of an accounting period and assigns a cost to it for stock valuation purposes. This assigned cost is usually based on the percentage of WIP that are completed at the end of the period. WIP is often more valuable than raw materials, but lower valued than finished products.
In an effort to reduce the amount of capital tied up in the manufacturing process, most companies strive to keep their WIP amount as low as possible.
WIP - Not always necessary
On the other hand, some production periods are very brief period and therefore this process does not need to be accounted for; instead, the items in production are simply considered as raw materials (i.e. in a bakery, ingredients in the dough are still considered raw materials, not WIP investment).
In this case, inventory essentially shifts directly from the raw materials inventory to the finished goods inventory, with no separate work in process accounting at all.