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August 19, 2026·Accounting & Finance·Pasento

Understanding work in process inventory

Partially completed goods still moving through production. You will see it abbreviated as WIP.

Definition

Work in process inventory is the half-finished work still moving through production. On the books, this is a current asset inside inventory, often abbreviated WIP.

The costs sit on the Balance Sheet until the batch is finished. They have not yet become cost of goods sold on the profit and loss statement.

A business that makes products counts units still on the production line here. The materials are no longer in the storeroom, and the units are not yet ready to sell.

This line holds manufacturing costs that are still attached to unfinished units. It is not unused raw materials, and it is not finished goods on the shelf.

Where it shows up

Balance Sheet: Located in the current assets section, inside inventory.

P&L: Related to manufacturing costs that have not yet become cost of goods sold.

Cash flow: Increases in this account, reported cash from operating activities decreases.

See also: Inventory · Finished Goods Inventory · Manufacturing Overhead

When you look at your Balance Sheet, work in process inventory sits inside inventory, in current assets. When this account is high, a lot of cost is tied up in unfinished batches; when it is low, production may be short, or work may be moving through quickly.

The profit and loss statement does not list WIP as a line. The related manufacturing costs wait here until the goods are finished and later sold.

On the Statement of Cash Flows, paying for the inputs is the cash event. Cash from operations falls as you pay for materials, labor, and overhead, and this account rises while those costs sit in unfinished goods.

Job tickets or batch sheets are the documents behind the balance. They show which costs belong to which unfinished work.

How it works

Three kinds of cost collect in WIP while production is underway:

  • Materials: Raw materials leave the storeroom and enter this account when production begins.
  • Direct labor: Wages for the people making the product join the same unfinished units.
  • Manufacturing overhead: The indirect production cost applied to units made, such as factory utilities and equipment depreciation.

The costs stay in WIP until the batch is done. Nothing on this line is cost of goods sold yet.

Some businesses track each job on its own. Others use a standard cost per unit and later compare that to what they actually spent.

When the goods are finished, the accumulated cost leaves this account. It moves into finished goods inventory, still an asset, now ready to sell.

If a batch is spoiled or dumped, the cost leaves WIP another way. That loss is no longer inventory.

A rising WIP balance can mean more work on the floor, or batches that are stuck. A falling balance can mean you finished more than you started.

Example

A small brewery starts a pale ale. It issues $1,200 of malt and hops from raw materials, records $400 of brew-day wages, and applies $200 of tank overhead.

The brewery records all three costs in one entry:

Debit: Work in process inventory $1,800

Credit: Raw materials inventory $1,200
Credit: Wages payable $400
Credit: Manufacturing overhead $200

WIP now holds $1,800 for beer still in the tank. The beer is not finished yet.

When the ale is kegged and ready to sell, the brewery records:

Debit: Finished goods inventory $1,800

Credit: Work in process inventory $1,800

WIP falls by $1,800 for that batch, and finished goods rise by $1,800. The profit and loss statement still has not recorded cost of goods sold.

Common mix-ups

WIP is not raw materials. Unused materials in the storeroom have not entered this account; materials already issued to production have.

WIP is not finished goods. Units on the production line are still being made; completed units in the stockroom are ready to sell.

WIP is not cost of goods sold. Manufacturing costs sit in this asset until the batch is finished and later sold.

Related terms