Work in process (WIP) is the value accumulated in the balance sheet throughout a project. WIP calculation applies to fixed-price projects, time and material projects, internal projects, and investment projects.

How is WIP calculated?

The method that you use to calculate WIP depends on the project type.

On external projects (fixed-price and time and material projects), the WIP system ensures that the cost and revenue entered on projects are recognized and matched on the profit and loss account within the same account period.
On internal projects (internal and investment projects), the WIP system ensures that costs are capitalized on balance accounts during the project.

Also, you can handle WIP in two different ways: WIP to cost value and WIP to sales value.

WIP to cost value

Costs are recognized when revenue is posted to a profit and loss account by temporarily capitalizing costs in the balance sheet.

Hours, expenses, and items are debited on the WIP - Cost valuebalance account and credited on the Costprofit and loss account. This option applies to all project types.

WIP to sales value

Revenue is recognized when costs are posted by accruing revenue on a profit and loss account and by debiting the WIP - Sales valueaccount. This option applies to fixed-price projects and time and material projects.

The following sections explain how to apply WIP to different project types.

Time and material projects

For time and material projects, WIP is calculated through periodic jobs or upon invoicing, depending on the ledger settings on the project group:

WIP at cost price on time and material projects – The cost of hour, expense, and item transactions is temporarily capitalized during the project. When the transactions are invoiced, the cost is recognized again on the profit and loss account to match the cost with the invoiced revenue.
WIP at sales price on time and material projects – Revenue is temporarily accrued during the project to match cost and revenue. When the transactions are invoiced, the accrued revenue is withdrawn.

Fixed-price projects

For fixed-price projects, WIP is calculated according to one of two accounting principles by estimation:

The completed contract principle – The cost of hour, expense, and item transactions is capitalized during the project, and WIP is valued at the cost price. At the end of the project, when the elimination is posted, the cost is recognized again on the profit and loss account, and the whole contract value is posted as revenue.
The completed percentage principle – Revenue is accrued during the project to match the cost on the profit and loss account, and WIP is valued at the sales price.

Internal projects

For internal projects, WIP is calculated through periodic jobs or on entry, depending on the ledger settings on the project group. WIP can only be calculated at the cost price, and WIP is handled just as when calculating WIP at the cost value on time and material projects.

Investment projects

For investment projects, WIP is posted by using the estimate system. WIP can only be calculated at the cost price, and WIP is handled just as it is for fixed-price projects with the completed contract principle. Only the elimination is different between the two project types.

WIP topics

Topic	Description
Set up WIP structure	Provides procedural information about how to set up the WIP structure.
About WIP accrued loss accounts	Provides conceptual information about how and where the WIP - Accrued loss account is applied and where parameter requirements are applied.
About WIP cost value accounts	Provides conceptual information about how and where the WIP - Cost value account is applied and where parameter requirements are applied.
About WIP cost value item accounts	Provides conceptual information about how and where the WIP - Cost value - Item account is applied and where parameter requirements are applied.
About WIP invoice on-account accounts	Provides conceptual information about how and where the WIP - Invoiced - On-account account is applied and where parameter requirements are applied.
About WIP profit accounts	Provides conceptual information about how and where the WIP - Profit account is applied and where parameter requirements are applied.
About WIP production accounts	Provides conceptual information about how and where the WIP - Production account is applied and where parameter requirements are applied.
About WIP sales value accounts	Provides conceptual information about how and where the WIP - Sales value account is applied and where parameter requirements are applied.
About WIP subscription accounts	Provides conceptual information about how and where the WIP - Subscription account is applied and where parameter requirements are applied.

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