Work-in-Process Inventory Account: Definition & Example

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  • 0:03 Work-in-Process…
  • 1:16 Example of a WIP…
  • 2:59 WIP and Job Cost Sheet
  • 3:50 Lesson Summary
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Lesson Transcript
Instructor: Yolanda Williams

Yolanda has taught college Psychology and Ethics, and has a doctorate of philosophy in counselor education and supervision.

The work-in-process inventory account allows companies to track the value of their inventory that is in work-in-process. Learn more about the work-in-process inventory account and its components from the example in this lesson.

Work-in-Process Inventory Account

It's time for you to do inventory at your factory. This means counting up all the product you have available. But what if you have material still in the process of becoming that product; how do you account for the cost?

Work-In-Process (WIP) refers to the materials that have started the production process, but have not yet been completed. In other words, a company's partially finished goods. The work-in-process inventory account is an asset account that is used to track the cost of the partially finished goods.

The work-in-process inventory account includes the value of the WIP inventory available at the start of the accounting period. The account also includes the manufacturing costs associated with the WIP, such as the direct labor, direct materials, and factory overhead that has been put into producing the partially finished goods.

The WIP goods that have been completed during the accounting period are credited to the WIP inventory account and debited to the finished goods inventory account. At the end of each accounting period, we calculate the remaining value of WIP. This amount becomes the value of the WIP inventory available at the start of the next accounting period.

Example of a WIP Inventory Account

Let's look at an example to help demonstrate exactly what it is that a WIP inventory account does.

Superior Glass is a company that manufactures and sells dishes.

At the beginning of the accounting period in March, Superior Glass had $7,000 in the WIP inventory account.

Superior Glass uses $3,000 in direct material during the accounting period in order to produce goods that have not yet been completed. The direct materials that are used to produce WIP are credited to the raw materials inventory account and debited to the WIP inventory account.

Superior Glass had to pay $2,500 in direct labor costs during the accounting period in order to produce March's WIP. The direct labor costs that were incurred as a result of the WIP is credited to the wages payable account and debited to the WIP inventory account.

Superior Glass also incurs $1,250 in factory overhead costs during the accounting period. The factory overhead cost is credited to the factory overhead account and debited to the WIP inventory account.

At the end of the accounting period, Superior Glass values the WIP that it completed during the month of March at $9,250. The goods that were stored in WIP that have completed the manufacturing process are credited to the WIP inventory account and debited to the finished goods inventory.

Here is what the WIP inventory account for Superior Glass would look like:

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