When the job is invoiced to the customer the ownership of the inventory, labour and overhead used on the job passes to the customer and they become a Cost of Sale. Until then they are still owned by the business and are therefore an asset. Job costs are not a cost of sale until the sale has been made and an invoice is been raised to the customer. Whether job costs should be counted as Work in Progress as an Asset, or Cost of Sales revolves around the matter of ownership and proper reporting in the Profit and Loss. While these are costs that have been incurred they are not a cost of sale until they are invoiced. Work in Progress for jobs, whether they be for service, contacting or projects, is the value of inventory, labour and overhead that have been consumed on jobs in progress that have not yet been invoiced. This is important because the value of these accounts will be updated as the manufacturing process flows from raw materials inventory through to semi finished inventory through to finished goods inventory. The General Ledger code for the value of inventory, labour and overhead consumed on production orders in progress have a description of “Work in Progress”.The General Ledger code for the value of inventory held in stock that is in an in-between state should have a description of “Sub-Assembly Inventory” or “Semi-Finished Inventory”.To avoid confusion between the two these should be two different general ledger codes with clearly distinguishable account descriptions. T he manufacturing work in progress value report needs to be reconciled with the balance of the manufacturing Work in Progress general ledger account. Inventory that is work in progress cannot be counted as it is no longer in stock as a raw material or part of a manufactured item. Work in Progress relates to the cost of inventory, labour and overhead consumed on open production orders in progress.Work in Progress inventory relates to actual inventory value that can be counted and has an on hand value that needs to be reconciled between the on hand inventory value report and the balance of Work in Progress Inventory general ledger account.It is important to distinguish between these as, This is not part of on hand inventory value as the inventory has been taken out of stock and been consumed.īoth of these relate to the value of inventory assets owned by the business, but the key difference is whether it refers to inventory that is in stock and can be counted, or if it refers to inventory no longer in stock, (plus labour and overhead) that has been consumed on production orders currently in progress. In this case the inventory is not in stock and cannot be counted as it has been consumed for use in the manufacturing process. This Work in Progress refers to the value of inventory, labour and overhead that is the cost of inventory currently being manufactured that is yet to be completed and receipted into stock. The true meaning of the term Work in Progress is the value of inventory, labour and overhead that have been consumed on production orders in progress for finished goods that have not yet been receipted into inventory.It is not uncommon for sub-assembly or semi finished components to be manufactured and held in stock waiting to be used in the manufacture of a number of finished goods products. This is not Work in Progress in the true sense of the term and simply refers to actual inventory in stock at an in between stage between raw materials and finished goods. Work in Progress is sometimes used to refer to inventory in stock that has been processed to a certain state in the manufacturing process and is awaiting further processing for finished goods inventory to be completed for sale. These are sub-assembly or semi finished products with their own item code that have an on hand quantity and can be counted.It can be used to mean two things, that should be carefully distinguished. It is during the in-between stage part way through the manufacturing process where the meaning of the term Work in Progress can become blurred. In the manufacturing process raw materials are assembled or processed into finished goods that are then sold. If these differences are not made clear in the financials it can cause confusion. In manufacturing there are two meanings to the term Work in Progress, that while closely related, are quite different. Work in Progress is an Asset account in the chart of accounts because it is an asset the business owns. Simply put, Work in Progress is the value of inventory, labour and overhead of work that is in progress and has not been completed. Work in Progress can have major impacts on the financial performance and position of a business, so understanding it and how to manage it is crucial for business performance.
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