Glossary
Accounting Basics

Work in Process Inventory

By: Alec Hollingsworth
Updated:  
June 16, 2025

DEFINITION:

Work in Process Inventory represents partially completed goods that are still undergoing production and are not yet ready for sale.
Work in Process (WIP) Inventory refers to partially finished goods that are still in the production process but are not yet ready for sale or distribution. In accounting, WIP includes the cost of raw materials, labor, and overhead that has been invested in these unfinished products. Tracking WIP is important for organizations that manufacture goods or provide services over time, as it helps determine the value of inventory still in production at any given period. Accurate WIP accounting ensures that your financial statements reflect the true costs associated with ongoing operations, preventing overstatement or understatement of assets and expenses.

Key Takeaways

  • Reflects partially finished goods in the production process
  • Includes raw materials, labor, and overhead costs
  • Crucial for accurate cost accounting and financial reporting
  • Affects inventory valuation on the balance sheet

Why It Matters

WIP inventory provides visibility into production costs and helps ensure accurate financial reporting.

Real World Example

A nonprofit runs a vocational training workshop where participants create handcrafted furniture. At the end of the month, several chairs are halfway finished—they’ve been cut and assembled but not yet painted or upholstered. The costs of wood, labor hours, and workshop overhead spent on these chairs are recorded as Work in Process Inventory. This allows the nonprofit’s accountant to track how much value is tied up in ongoing projects, ensuring the financial statements accurately reflect what is still in production, rather than finished goods or consumed resources.

How Aplos Helps

Aplos offers tools to help nonprofits and organizations track inventory and production costs. By accurately recording and managing Work in Process Inventory, users can generate precise financial reports, monitor ongoing projects, and ensure compliance with accounting standards. Aplos makes it easy to document the flow of goods and allocate costs correctly, supporting better decision-making for your organization.
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Frequently Asked Questions

What is Work in Process Inventory?

Work in Process Inventory includes partially finished goods that are still being produced and not yet ready for sale.

Why is WIP important for nonprofits?

It helps nonprofits track ongoing project costs, ensuring accurate financial statements and resource allocation.

How does Aplos help manage WIP Inventory?

Aplos allows you to record and monitor inventory levels, allocate costs to projects, and generate reports reflecting WIP balances.

What costs are included in WIP?

WIP includes raw materials, direct labor, and allocated overhead costs associated with unfinished goods.

How is WIP different from finished goods inventory?

WIP represents items still in production, while finished goods inventory consists of completed products ready for sale or distribution.

Related Terms

Fiscal Year
Matching Gift
Stewardship
Zero-Based Budget
Mid-Year Reforecast
Revenue Recognition

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