Accountants consider works in progress (WIP) to be current assets because there's a reasonable expectation that such items will become marketable products that can potentially convert into cash within one year. Current assets contrast noncurrent assets like long-term notes receivable🌠, and intangible assets like patents.

What Is a Work in Progress (WIP)?

The term work in progress is commonly used in accounting to refer to a task or project that is waiting to be co🌺mpleted. This means it is still in the production phase and are still being developed by the producer. Goods that are WIPS are assumed to take a longer amount of time and a heavier investment in the production phase.

WIP may also refer to the costs associated with unfinished goods in the 澳洲幸运5官方开奖结果体彩网:supply chain. This includes any labor expenses, 澳洲幸运5官方开奖结果体彩网:raw materials, and overhead. These costs are r🅺ecorded as the production phase carries on. As such, they are listed on a company's balance sheet under its current assets. That's because they are considered assets that will be sold within 12 months.

The WIP is important in accounting because it:

• Maintains a company's financial accuracy
• Tracks revenue on the progress of a project
• Provides insight into the actual costs of a project
• Ensures accurate billing to clients as work is completed
  

Understanding Current Assets

In financial accounting, current assets include any 澳洲幸运5官方开奖结果体彩网:balance sheet item that a company can convert into cash within one year. This conversion must be affected during routine business operations. Therefore, bankruptcies and other 澳洲幸运5官方开奖结果体彩网:liquidation events would not qualify as current assets. Common balance sheet current assets🔯 include:

• Supplies of inventory
• Cash reserves
• Short-term notes receivable
• 澳洲幸运5官方开奖结果体彩网:Prepaid expenses
• 澳洲幸运5官方开奖结果体彩网:Marketable securities

The expenses related to a work in progress (raw materials, labor, and overhead) are often listed under the inventory section of a company's balance sheet. If you add the current assets and WIP together, you end up with a company's readily available assets.

Example of a Work in Progress (WIP)

A WIP can be easily understood in the context of the manufacturing process. Imagine a warehouse where lumber is used to create tables, chairs, and other wooden furniture 🅷items. Although the lumber arrives as𒐪 raw material, pieces of wood are sized, cut, polished, and assembled over time.

The unaltered pieces of wood are deemed WIP since they will ultimately become salable finished goods, within a year. These marketable products will either result in cash or accounts receivable (AR). In either scenario, a🥀ccountants would consider the WIP to be a current asset on a balance sheet.

The Bottom Line

A work in progress is any task that a company is developing but hasn't yet finished. Accountants typically consider a WIP to be a current asset because of the time expected to be completed. Current assets are any assets that a company expects to use and sell within a year. You can find these under the assets section of a company's balance sheet.