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

You can think of work-in-process (WIP) inventory as the goods that are on the factory floor. The manufacturing of these goods has begun but has not yet been completed.

You can also think of work-in-process inventory as the general ledger current asset account that reports the cost of the goods that are on the factory floor. In the U.S. the cost reported as WIP should be the cost of the direct materials, direct labor and the allocation of manufacturing overhead for the goods on the factory floor.

As the WIP goods become completely manufactured, their cost will be credited to the WIP account and will be debited to the Finished Goods Inventory account.

You can expect to see the cost of a manufacturer's work-in-process inventory in the notes to its financial statements.