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geosystems · Aug 20, 2009, 02:34 PM

What is considered WIP? Should I be including the inventory items that may still be inventory but are allocated to a job making them un-usable inventory. What about jobs that are partially invoiced? Does some of the cost need to be considered WIP?

morgaine300 · Aug 20, 2009, 06:26 PM

Work in process means something you are making that is in the middle of being made. i.e. started but unfinished. Like if you were making a table and you had the wood pieces all cut out, had two legs screwed into place, but didn't have the other legs on and had not done the finish. It's started but not finished.

Invoicing the items is irrelevant to whether they are finished or not. That does make a difference in how you handle other things, but not in how you handle the WIP account itself. Sending a piece of paper to someone doesn't make the item any more or less finished.

(Side note: if you're getting paid ahead of time on something that is not yet completed, that needs to be recorded as Unearned Revenues, a liability - you still owe them the item, and you don't earn it until you delivery it. This is assuming it isn't some long-term contract type of thing. That's a different issue.)

Costs that are considered WIP are any costs that have already gone into making the item. That would include any materials already being used, any labor that has already been used, and any overhead that can be applied. However, applying overhead costs is a subject unto itself and can spread itself over chapters in cost accounting books.

I'm not sure what you mean by "still be inventory but are allocated to a job making them un-usable inventory." Are you referring to materials that have already gone into the making of the item? Then yes it's counted - because it's a cost that has already gone into it. That is precisely what WIP is. The inventory that has no been started into the process should still be in a materials inventory. Using my table example, all of the wood already worked on for that table will count as costs, including the two legs you haven't put on yet.