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Finance & Accounting

Work in Progress (WIP)

Work in Progress (WIP) refers to partially completed goods, jobs, or projects that have incurred costs but haven't yet been converted to finished inventory or recognized as revenue, a critical metric for managing cash flow and margins in manufacturing and project-based businesses.

What Is Work in Progress (WIP)?

Work in Progress (WIP), also called Work in Process, is the value of goods or projects that have been started but not yet completed at the end of an accounting period. WIP sits on the balance sheet as a current asset, between raw materials (inputs not yet used) and finished goods (output ready for sale).

In manufacturing, WIP represents production runs that are mid-process. In project-based businesses like construction or engineering services, WIP represents work that has been performed but not yet invoiced or delivered.

WIP on the Balance Sheet

WIP is classified as inventory on the balance sheet:

Assets:
  Current Assets:
    Cash
    Accounts Receivable
    Inventory:
      Raw Materials         $XXX
      Work in Progress      $XXX   ← partially completed jobs
      Finished Goods        $XXX

The WIP balance grows as costs are applied to jobs in progress and shrinks as jobs are completed and transferred to finished goods.

What Costs Are Included in WIP?

WIP accumulates the same three cost categories as job costing:

  • Direct materials: Materials issued to the job from inventory
  • Direct labor: Labor hours applied to the job
  • Applied overhead: Indirect costs allocated to the job via an overhead absorption rate

WIP as a Leading Indicator

For manufacturing and project-based finance leaders, WIP aging is one of the most important leading indicators available:

Cash flow signal: A growing WIP balance means capital is tied up in production before it can be converted to revenue. Slow-moving WIP is a leading indicator of cash flow pressure.

Margin risk signal: WIP jobs where actual costs are running ahead of estimate signal margin compression before the job closes. Catching this mid-job allows corrective action; catching it post-delivery doesn’t.

Billing and revenue signal: In project businesses, unbilled WIP represents earned but unrecognized revenue. Aging WIP often signals billing backlogs or project delays.

Operational signal: Abnormally high WIP relative to revenue can indicate production bottlenecks, capacity constraints, or scheduling problems on the shop floor.

Common WIP Reporting Challenges

WIP data lives in multiple systems. Production status is in the MES or production scheduling system. Costs are in the ERP. Labor is in the time-tracking system. Without integration, finance teams have no real-time WIP visibility.

Manual job cost updates create lag. When labor and material postings happen weekly or at month-end, WIP balances are always stale. Finance leaders can’t identify at-risk jobs until after they close.

Overhead absorption timing distorts WIP. If overhead isn’t applied to WIP until month-end, mid-month WIP balances understate true cost.

WIP aging reports require custom work. Most standard ERP reports show WIP balance, not WIP age by job. Identifying jobs that have been open for 60, 90, or 120+ days typically requires manual analysis.

How Go Fig Improves WIP Visibility

Go Fig connects production, labor, and costing systems to surface real-time WIP balances and aging by job. Finance leaders get a live view of WIP exposure, which jobs are running over estimate, which have been open too long, and which carry the most margin risk, without waiting for month-end close.

Related terms

Cash Flow Forecasting

Cash flow forecasting is the process of estimating future cash inflows and outflows over a defined time period to help organizations anticipate liquidity needs, plan financing, and make informed strategic decisions.

Job Costing

Job costing is an accounting method that tracks all direct materials, direct labor, and overhead costs assigned to a specific job, project, or production run, enabling manufacturers and contractors to calculate the true profitability of individual jobs.

Overhead Absorption

Overhead absorption is the process of allocating indirect manufacturing costs (overhead) to individual products, jobs, or production runs based on a predetermined rate, ensuring all production costs are captured in product cost calculations and inventory valuations.

Profitability Analysis

Profitability analysis is the process of evaluating the profit contribution of individual customers, products, channels, or business units to identify which areas of the business are generating or destroying value, enabling smarter resource allocation and pricing decisions.

Standard Costing

Standard costing is a cost accounting method that assigns predetermined expected costs to products or production activities, providing benchmarks against which actual costs are compared to identify variances and control manufacturing costs.

More Finance & Accounting terms

Accounts Payable

Accounts payable (AP) represents money owed by a company to its suppliers and vendors for goods or services received but not yet paid, a current liability on the balance sheet and a key component of working capital management.

Accounts Receivable

Accounts receivable (AR) represents money owed to a company by its customers for goods or services delivered but not yet paid, a current asset on the balance sheet and a critical factor in cash flow management.

Accrual Accounting

Accrual accounting is the accounting method that records revenue when earned and expenses when incurred, regardless of when cash is exchanged, providing a more accurate picture of financial performance than cash-basis accounting.

All glossary terms

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