Work in progress, usually shortened to WIP, is work that has been started and is not yet finished. In US accounting the phrase carries two distinct readings. The inventory reading is goods partway through production, the middle of the three classes a manufacturer carries between raw materials and finished goods, held as a current asset and presumed to be stated at the cost accumulated in it. The services and long-duration contract reading is the value of work already performed measured against what has been billed for it. In a firm that sells time, that means recorded time not yet invoiced. For a contractor it is each open job’s earned amount set against its billings, which can run in either direction.
Outside accounting the phrase keeps its plain sense, anything unfinished and still being worked on, and that sense carries no balance sheet consequence.
The Inventory Reading
The class comes out of the inventory standard rather than out of bookkeeping habit. Inventory embraces goods awaiting sale, goods in the course of production, and goods to be consumed directly or indirectly in production, and the discussion names that middle group work in process (Accounting Research Bulletin No. 43, Chapter 4, paragraph 3).
Where the class sits among the others and how that bulletin reaches the Codification are worked through in raw materials. What accumulates inside the class is the material issued into production, the direct labor and the overhead applied, which is the pool described in production costs.
The Services and Contract Reading
In a business that sells time rather than units, the same words point at value instead of goods. In a CPA firm, WIP is time recorded against jobs and valued at a rate but not yet on an invoice, a balance with an age and a client attached, and producing it is a job record problem set out in accounting practice management software. A contractor’s version is the WIP schedule, which sets what each open job has earned against what it has been billed, and that schedule is built row by row in construction accounting outsourcing.
A CPA firm’s WIP is not an inventory class. Nothing tangible is being held, so the amount measures work performed rather than a stock of goods. A contractor’s WIP schedule is a management report rather than a balance sheet caption, though a long-duration job can also carry inventoried contract costs.
A Work in Process Roll-Forward
The inventory class moves the same way every period. Say a manufacturing client’s month produces the figures below.
Beginning work in process $60,000
Costs added during the month $210,000
Cost of goods manufactured, transferred out $225,000
Ending balance 60,000 + 210,000 - 225,000 = $45,000What leaves the class is the cost of the units that finished, not the cost of the units that sold. Those are different figures, and the second one is only reached once the finished units go out the door.
Work in Process and Work in Progress
US reporting language uses work in process for the inventory class. A registrant states separately, in the balance sheet or in a note thereto, if practicable, the amounts of major classes of inventory, and the classes it names include work in process (17 CFR 210.5-02.6(a)). The unbilled reading sits elsewhere in the same schedule. A registrant whose receivables include amounts due under long-term contracts states separately, in the balance sheet or in a note to the financial statements, the amounts representing the recognized sales value of performance and such amounts that had not been billed and were not billable to customers at the date of the balance sheet (17 CFR 210.5-02.3(c)(2)).
No authority makes one spelling right and the other wrong. The tax regulation uses neither phrase, saying instead that the inventory should include all finished or partly finished goods (26 CFR 1.471-1(a)). So work in progress is not an error. It is the usual label for long-duration contract and services work, while work in process is the reporting label for the inventory class, and anyone reading WIP on a schedule has to ask which of the two is meant.
Common Questions
Yes. In general use the two spellings are interchangeable. In US financial reporting the inventory class carries the work in process label, so a manufacturer’s balance sheet note tends to read work in process while a contractor’s or a firm’s internal schedule reads work in progress.
Outside an accounting context it means the thing is unfinished and still being worked on, with no claim about how far along it is. Inside one, ask which reading is in play, because an inventory class and an unbilled services balance behave nothing alike.
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