What is work-in-process inventory (WIP)?

Definition of Work-in-process Inventory

Work-in-process (WIP) inventory pertains to the goods for which the manufacturing has begun, but not yet completed. In other words, WIP is the items on the factory floor.

Work-in-process inventory is also the general ledger account that reports the cost of the goods that are on the factory floor. In this current asset account are the cost of the direct materials, direct labor and the allocation of manufacturing overhead for the goods on the factory floor.

In a perpetual inventory system, when the goods in WIP are completed, their cost will be moved from the WIP account into the Finished Goods Inventory account.

The cost of a manufacturer's work-in-process inventory are to be disclosed in the company's financial statements.

Example of Work-in-Process Inventory

Generally, the amounts in work-in-process (WIP) are relatively small compared to a manufacturer's cost of goods sold and its finished goods inventory.