Manufacturing Process
Work in progress refers to the expenses tied to incomplete items within the Manufacturing Processjourney, encompassing labor, raw materials, and overhead costs.
It is considered to be a current asset on the balance sheet because it is expected to be converted into cash within one year.
The amount of WIP on the balance sheet will depend on the stage of production of the goods, the cost of the materials and labor used, and the estimated amount of overhead costs.
The impact of WIP on the balance sheet can summariz as follows:
1. It increases the total assets of the company.
2. It decreases the net working capital of the company.
3. It can affect the company’s profitability, as it can includ in the cost of goods sold.
4. It can affect the company’s liquidity, as it is a current asset that can convert into cash relatively quickly.
The following are some examples of how WIP can affect the balance sheet:
1. A company that manufactures furniture will have WIP on its balance sheet for the materials and labor that have been used to build the furniture, but which are not yet finished.
2. A construction company will have WIP on its balance sheet for the materials and labor that have been used to build a building, but which is not yet complete.
3. A software company will have WIP on its balance sheet for the software that can develop, but which is not yet finish.
The amount of WIP on a company’s balance sheet can be significant, and it is important to track it carefully.
This is because WIP can have a major impact on the company’s financial statements and its ability to generate cash.
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