How is work in progress (WIP) typically measured in accounting?

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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.



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