Welcome to my Work in Progress Journal Entry, where I will be sharing my thoughts, experiences, and progress in my current projects. As someone who has an intense passion for learning and creating, I find it essential to record my thoughts and accomplishments throughout my various projects. I believe that by taking the time to reflect and review my progress, I can narrow my focus and ensure that I’m creating something of the highest quality that I can be proud of. This journal serves as a personal tool to help me make the most of my creative journey.
In this entry, I want to analyze my current work in progress, its goals, and what I’ve done so far. Through this reflective exercise, I hope to gain clarity on my work and make necessary improvements. I want to use this entry as a way of exploring the necessary steps and milestones that I need to take in order to finish my project.
By recording my thoughts and progress in this space
Work In Progress (WIP) Calculation Demonstration
How do you account for work in progress?
Considering that the business is holding the inventory until it is ready, the WIP account represents a cost to the business. This expense results from the fact that this account requires storage space and supervisory oversight. The longer a product is stored, the greater the likelihood that it will become dated and lose value. This highlights the importance of just-in-time (JIT) and WIP monitoring.
Monitoring JIT involves keeping a close eye on the products and storing them as little as possible. In a similar vein, WIP monitoring minimizes the need for extra inventory. You can figure out the costs the business incurred to incur the following expenses to determine the total amount of the partially finished products in WIP:
Overhead costs
The ongoing expenses that aren’t directly connected to the production of a good are referred to as overhead. These expenses are crucial for budgeting and can assist businesses in determining how much to charge for a product to turn a profit. Administrative costs, rent, utilities, insurance, and any employee perks, like gym membership discounts or company retreats, can all be included in these costs.
There are two types of overhead costs: fixed overhead costs, which remain constant over time, and variable overhead costs, which fluctuate based on the company’s production output. With semi-variable overhead costs, a portion of the cost is incurred regardless of output, and the remaining portion is directly related to the level of production.
Labor costs
The total of all employee wages that a business pays constitutes its labor costs. The cost of employee benefits, such as health insurance, life insurance, vacation pay, employee stock ownership plans, and any additional payments the employer might make to an employee on top of their regular salary are also included. Payroll taxes are also included.
Additionally, labor costs can be divided into two main groups: direct and indirect costs. Wages paid to workers who directly create a product, such as those working on a factory line to assemble or inspect it at various stages of production, are included in direct labor costs. The salaries of workers whose assistance to other production workers offsets their lack of direct involvement in the creation of a good constitute indirect costs. These may consist of technicians who maintain the factory’s machinery, janitors, or factory managers.
Material costs
The expenses needed to produce a product are known as material costs. These expenses do not account for indirect expenses that might be related to the manufacturing process, such as the cost of cleaning supplies that workers might use to keep the facility tidy. Instead, they cover the cost of any raw materials or components used in the product’s direct production. For instance, the plastic used to make each bottle’s lid is a material cost for a company that makes water bottles.
It’s crucial for businesses to decide whether to record the materials they bought at the point of sale or include extra expenses like sales taxes or customs duties. Adding these costs may require more accounting work. The majority of the time, businesses record these expenses as incurred costs, which means that they are immediately reflected in the cost of goods sold (COGS) entry in the accounting journal. The COGS, or cost of goods sold, is a company’s total direct cost of producing a good.
What is a work-in-progress journal entry?
Accounting experts use work-in-progress journal entries to record current assets on a company’s balance sheet. These items don’t include any raw materials or finished goods, according to this journal entry. Instead, since the cost of these materials first appears at the start of the production process, the WIP entry includes the entire amount of raw materials required to produce a specific product. Before moving on to the cost of sales account on the balance sheet, which is near the top of an income statement, this cost eventually applies to the finished goods.
It is necessary to move the goods into the WIP account each time warehouse staff move raw materials from the stock to the production floor. It may be quicker and simpler to transfer the cost of raw materials directly into the finished goods account rather than the WIP account, depending on how lengthy the production process is. The finished goods account lists the products that have undergone manufacturing but have not yet reached the point of sale.
How to set up a work-in-progress journal entry
The procedures for calculating and recording WIP inventory in an accounting journal are as follows:
1. Determine the starting WIP inventory
The value of products that are currently being produced but won’t be finished by the end of the accounting period is the beginning WIP inventory. The span of time during which a company performs accounting tasks is known as an accounting period. Depending on the organization, an accounting period can be a fiscal year, a business quarter, or even a week. You can calculate this value by taking the end WIP inventory from the prior accounting period and using it as the starting point for the subsequent period.
2. Calculate the manufacturing costs
Costs associated with producing a product are referred to as manufacturing costs. These include overhead costs, labor costs and material costs. Raw material and labor costs are likely to increase for businesses with more WIP inventory that is produced, which may have an impact on overall manufacturing costs. Similar to this, businesses with lower WIP inventory are probably to have lower costs. You can determine these costs by combining the costs of labor, overhead, and materials.
3. Find the cost of manufactured goods
The total expenses a business incurs to produce a finished good are known as the cost of manufactured goods (COGM). You can calculate the COGM by first multiplying your initial WIP inventory by your total manufacturing costs. The COGM can then be obtained by deducting the ending WIP inventory.
4. Calculate the conclusive WIP inventory
It is possible to calculate the total ending WIP inventory after calculating the COGM, the beginning WIP, and the manufacturing costs. The cost of partially finished goods at the end of the accounting period is represented by the ending WIP inventory, which is an asset. You can first add the starting WIP inventory and the total manufacturing costs to determine this value. You then subtract the COGM from the total. The result is the ending WIP inventory.
5. Create a WIP journal entry
As an asset, the WIP can be recorded as a debit in the accounting journal after being calculated. Debits appear on the left side of an accounting journal and credits appear on the right. Review the calculations carefully to ensure that you included all necessary costs before entering your data.
You can enter the raw materials inventory below the WIP inventory entry. All the components that the company hasn’t yet used for manufacturing purposes are included in the raw materials inventory. Since some products don’t need a lengthy WIP process and may only be in storage for a short period of time before moving through manufacturing, not all businesses keep a WIP entry.
What to include in a work-in-progress journal entry
The journal entry for WIP inventory must include all overhead, labor, and material costs. Once a product is finished, a business can update the journal entry to reflect that the item is now a finished good. The resulting entry involves crediting WIP inventory and debiting finished goods. People who use the company’s financial statements may find it easier to understand the various categories of inventory as a result of this reclassification. Additionally, the company’s balance sheet must be zero. If it doesn’t, there might be a transactional error.
FAQ
How do you record work-in-progress in accounting?
Simply begin with the work-in-progress account’s opening balance. The costs of the resources added to the account during the relevant period should then be added. Lastly, deduct the work-in-progress account’s final balance for that time period.
Is WIP a debit or credit?
Direct materials used in production, direct labor used in production, and the amount calculated for MOH are all debited (increased) from the “WIP” account. An asset becomes a finished product that can be sold once it has completed all of the production stages.
What type of account is WIP?
The journal entry would be a credit to inventory-WIP and a debit to inventory-finished goods. The net impact to the balance sheet is zero. There is also zero impact to the income statement.
