Work in progress is the value of work that has been started but not yet completed or billed, a balance sheet item that, if not managed carefully, can mask serious cash flow and profitability problems.
For project-based businesses, WIP sits between effort and revenue. Labour has been expended, materials consumed, and costs incurred, but no invoice has been issued. That value sits on the balance sheet as a current asset, representing future billing.
The risk is in how WIP is valued and monitored. Overstated WIP, projects recorded as further along than they actually are, inflates assets and pulls future revenue forward. Understated WIP understates the value of work performed. Either distortion makes the financials unreliable for management decisions and creates immediate questions in due diligence. In construction and professional services, WIP management is one of the clearest indicators of financial discipline.
See also: Job Costing · Percentage of Completion · Deferred RevenueWIP management is where project-based business financials most often break down under scrutiny. See how Wefinx approaches accounting.