What is WIP inventory?
WIP inventory, work in progress or work in process, is the value of everything in jobs that have started but not finished: material issued to open work orders, labour logged on them, and any overhead applied, less what has been completed into finished goods. It is an asset on the balance sheet and a measure of how much cash is tied up on the shop floor.
By Arunkumar V, CTO · 03 November 2026 · 3 min read
- work in progress inventory
- work in process meaning
- how to calculate WIP
- WIP vs finished goods
How WIP is calculated
For one job, WIP equals material issued at cost, plus labour hours times the work-centre rate, plus applied overhead, plus subcontract bills, minus the cost of any quantity already received into finished goods. For the shop, WIP is the sum over all open work orders. In accounts the same figure is the balance of the WIP account: opening WIP, plus material, labour and overhead applied, minus cost of goods completed, equals closing WIP. If the sum of open jobs and the ledger balance disagree, something has posted to one and not the other, which is the most useful month-end check a small shop can run.
| Movement | Effect on WIP |
|---|---|
| Material issued to a job | Increases |
| Material returned from a job | Decreases |
| Labour logged at a work centre | Increases |
| Job completed into finished goods | Decreases |
| Scrap written off from a job | Decreases, cost goes to expense |
Why it matters
Three reasons. Cash: every rupee, dollar or pound in WIP was paid out for material and wages and has not yet been invoiced. A shop with jobs that sit half-done for weeks is lending money to itself at the overdraft rate. Profit: if WIP is not counted at period end, the cost of unfinished jobs is expensed this month and the sale lands next month, so one month looks bad and the next looks good. Control: WIP by job shows which orders have had material and hours poured in without moving, which is usually where the shortages, missing drawings or waiting-for-customer decisions are hiding.
Tracking WIP without a full costing system
The simplest view is a list of open work orders with their issued material and logged hours, which is enough for most small shops. The next step is to value it, which needs real issue costs and a rate per work centre. The step after that is to post WIP to the ledger automatically from the same transactions, which is what a manufacturing ERP does. Shops without one count WIP at month end by walking the floor, which is slow and depends on who is counting. Whatever the method, close jobs promptly. Old open jobs with a few hours left on them inflate WIP and hide the real picture.
WIP, raw materials and finished goods
Inventory has three states. Raw material and bought parts sit in the warehouse until issued. WIP is the value in jobs between issue and completion. Finished goods are completed items in stock until shipped. The movements between them are the stock ledger: an issue moves value from raw to WIP, a completion moves it from WIP to finished goods, a delivery moves it to cost of goods sold. Scrap written off from a job leaves WIP and becomes an expense. Keeping the three states separate and reconciling them monthly is what makes the balance sheet trustworthy.
Where ZMOS fits
In ZMOS, material issues and returns post against the work order from the immutable stock ledger at real issue cost, and labour is logged at work centres through barcode job cards, so each open job shows what has gone into it. Job cost is reported per job and per unit on the day the job closes, and the double-entry accounts sit in the same workspace. It is built for sheet-metal, machining and fabrication shops of 10 to 50 people. If you need WIP valued per process stage in a continuous line, as a food or chemical plant would, job-based WIP is not the right model.
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Inside ZMOS
Is WIP an asset or an expense?
An asset, until the job completes. Material and labour in open jobs sit on the balance sheet as WIP inventory. When the job completes they move to finished goods, and when the goods ship they become cost of goods sold, an expense matched to the sale.
What is the difference between work in progress and work in process?
In manufacturing they mean the same thing and both are abbreviated WIP. Some accountants use work in progress for long contracts, such as construction, and work in process for factory jobs. Pick one term for your shop and use it consistently.
How often should WIP be valued?
At least at every period end for the accounts, and weekly as a list of open jobs for management. If the figure comes automatically from material issues and labour logs, look at it daily; the open-job list is where stuck jobs show up first.
How can I reduce WIP?
Release work orders only when material and drawings are on hand, close jobs the day the last operation finishes, keep batches small, and chase the oldest open jobs weekly. Most excess WIP is jobs waiting for something, not jobs being worked on.
See it on your own stock and jobs
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