What is Work-in-Progress (WIP) Inventory?
Work-in-progress inventory is the value of partially completed products on the factory floor at the reporting date. It sits on the balance sheet between raw materials and finished goods, and includes the raw material, direct labor, and overhead already absorbed up to that point.
How It Works
- Captured at the end of each accounting period through a physical or system count
- Valued at cost using FIFO, weighted average, or standard costing
- Movement: opening WIP + costs added during the period − transfers to finished goods = closing WIP
- Excessive WIP signals bottlenecks; very low WIP can mean shortages or just lean operations
- Reconciled with the production system and the general ledger every period
Saudi Context
Saudi manufacturers and contractors report WIP under IFRS, with detailed disclosure required for listed companies. Construction firms also use IFRS 15 to recognize revenue on long-term projects, which interacts directly with WIP tracking.
Example
A Saudi furniture factory closes the month with 200 partially assembled sofas. Raw material costs in each sofa = SAR 800; labor and overhead absorbed = SAR 400. Closing WIP = 200 × 1,200 = SAR 240,000, shown as a current asset on the balance sheet.