Partially completed inventory that has entered production but is not yet ready for sale as finished goods.
Work in progress, often shortened to WIP, is partially completed inventory that has entered production but is not yet ready for sale as finished goods. It sits between raw materials and finished goods in the production flow.
WIP affects inventory valuation, cost accumulation, and period-end cutoff. If it is misstated, both the balance sheet and cost of goods sold can be distorted.
Manufacturing entities accumulate direct materials, direct labor, and applied overhead into WIP as production moves through stages. When production is completed, the related cost transfers from WIP to finished goods. If units remain incomplete at period end, accountants must assess how much cost belongs in WIP rather than expense or finished inventory.
A manufacturer has partly assembled goods that include 15,000 of materials, 8,000 of labor, and 5,000 of applied overhead. Until those units are complete, the 28,000 total remains in work in progress rather than finished goods.
WIP is not the same as raw materials and not the same as finished goods. It represents units still in production, not items waiting to start or ready to sell.