![]() But first, we have to establish what businesses should aim for with regards to WIP. Now how does WIP figure into the process of analyzing financial statements? We’ll get to that soon. The formula to arrive at that figure is: WIP Inventory, beginning balanceĬonfused yet? You’d understand this better if we go over the production process for a bit. Instead of an asset account, it will form part of the cost of goods manufactured, which will appear in the Income Statement. In financial statements analysis, the WIP may also refer to the portion of the total Production Costs that was actually used in the production process. This is the figure that will be included in the Inventory account presented in the Balance Sheet.īut you have to be careful here. indirect materials, indirect labor, and other overhead expenses, such as utilities and depreciation directly traceable to the production process)Īt the end of the reporting period, the amount corresponding to the cost of goods that have been placed into process, but are not yet completed, is the ending inventory of the WIP.
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