Is work in progress an asset or an expense?

An asset. It sits on the balance sheet and represents costs invested in jobs that are not finished. It becomes an expense, specifically cost of goods sold, at the moment the job closes.

What is the journal entry for work in progress?

Debit Work in Progress for the job, credit whatever paid for it, whether that is a bank account, a credit card or accounts payable. At completion you reverse it: debit Cost of Goods Sold, credit Work in Progress.

How is WIP different from inventory?

Inventory is stock you hold that any customer could buy. WIP is cost committed to one specific customer's job. Both are balance sheet assets, but WIP is already spoken for.

Does WIPKeep produce a percentage-of-completion WIP schedule?

No. WIPKeep uses completed-contract recognition, holding costs as WIP and releasing them at close. It does not calculate percent complete, earned revenue or over and under-billings. If a bonding company requires that schedule, you will need heavier construction software.

What work in progress means on a contractor's books

Updated July 27, 20264 min readWritten by the WIPKeep team

The short answer

Work in progress, or WIP, is the accumulated cost of jobs you have started but not finished, held on your balance sheet as an asset rather than charged to your profit and loss. It exists because a cost should land in the same period as the revenue it helped earn. When the job closes, the whole WIP balance is released against that job's revenue.

Key takeaways

WIP is a balance sheet asset, not an expense. It represents value you have built but not yet billed.
Without WIP, a job that spans your year end drops all its costs into one tax year and all its revenue into the next.
The WIP balance on December 31 should equal the total costs sitting in every job that is still open.
Small-contractor WIP is not the same thing as the bonding-grade WIP schedule a large commercial contractor produces.

Work in progress is the least intuitive idea in contractor bookkeeping and the one that pays the most attention back. Here is the problem it solves.

The December problem

You land a $24,000 kitchen in mid-November. By December 31 you have spent $13,200 on cabinets, countertops, plumbing and electrical. The job finishes in late January and you invoice then.

If those costs were charged to expenses as you spent them, your December books show $13,200 of costs against zero related revenue. Your year closes with a hole in it. Then January shows $24,000 of revenue against only the last $2,800 of cost, and your first quarter looks like a miracle.

Neither picture is true. The job made $8,000 across three months, and no single month of that reporting told you so.

What WIP does instead

Every cost tagged to that kitchen goes to a balance sheet account instead of an expense account.

A cost on an open job

Account	Debit	Credit
Work in Progress: Henderson kitchenBalance sheet asset	$7,300.00
Business Checking		$7,300.00
Total	$7,300.00	$7,300.00

Debits equal credits. Your profit and loss statement is untouched. You converted cash into an unfinished job, and the balance sheet says so.

On December 31 your balance sheet carries $13,200 of work in progress and, if the customer paid a deposit, a matching liability for that deposit. Both are honest statements about where the business stood on that date.

Releasing it at close

Job completed in January

Account	Debit	Credit
Cost of Goods SoldAll accumulated costs, released at once	$16,000.00
Work in Progress: Henderson kitchenThe holding account empties		$16,000.00
Total	$16,000.00	$16,000.00

Debits equal credits. Recognized in the same period as the $24,000 of revenue, giving a true gross profit of $8,000 and a 33 percent margin.

What WIP is not

The phrase carries different meanings depending on who is saying it, and conflating them causes genuine confusion.

Two things called WIP
	Cost-held WIP	The commercial WIP schedule
Who uses it	Small contractors, completed-contract accounting	Larger commercial contractors, bonding and lending requirements
What it is	A balance sheet account holding unfinished job costs	A report estimating percent complete, earned revenue, over-billings and under-billings
When revenue is recognized	At job completion	Progressively as work is performed
Who asks for it	Nobody, it is internal hygiene	Bonding companies, lenders, sureties

Do you need this if all your jobs are short?

Honestly, less. If you start and finish inside the same week and never carry a job across a month end, the difference between holding costs as WIP and expensing them immediately is small.

It starts to matter when any of these are true:

Jobs run longer than a month.
Any job will be open on your fiscal year end.
You take deposits before starting work.
You want to compare margins between jobs rather than between months.
You buy materials well before the work happens.

Frequently asked questions

Is work in progress an asset or an expense?: An asset. It sits on the balance sheet and represents costs invested in jobs that are not finished. It becomes an expense, specifically cost of goods sold, at the moment the job closes.
What is the journal entry for work in progress?: Debit Work in Progress for the job, credit whatever paid for it, whether that is a bank account, a credit card or accounts payable. At completion you reverse it: debit Cost of Goods Sold, credit Work in Progress.
How is WIP different from inventory?: Inventory is stock you hold that any customer could buy. WIP is cost committed to one specific customer's job. Both are balance sheet assets, but WIP is already spoken for.
Does WIPKeep produce a percentage-of-completion WIP schedule?: No. WIPKeep uses completed-contract recognition, holding costs as WIP and releasing them at close. It does not calculate percent complete, earned revenue or over and under-billings. If a bonding company requires that schedule, you will need heavier construction software.