After we have seen T-account and related accounting for factory overhead, let’s look at the Work-in-Process Inventory account. The Work-in-Process Inventory account includes the following information:

• Amount of work-in-process inventory available at the beginning of an accounting period (i.e. beginning balance as a debit because inventory is an asset account).  The balance represents manufacturing costs for unfinished production at the beginning of the period.
• Manufacturing costs transferred to the account during the accounting period (debit side). The costs include direct materials, direct labor, and factory overhead.  Such costs are for items added to the production process during the period.
• Manufacturing costs transferred to the Finished Goods Inventory account (credit side). Such costs represent goods which were finished during the period and which became ready for the final customer.
• Amount of work-in-process inventory available at the end of the account period. The balance represents manufacturing costs for unfinished production at the end of the period. This balance becomes the beginning balance for the following accounting period.

Illustration 12: Work-in-process inventory T-account

Let us continue with our example of Friends Corporation.  Some transactions that have already taken place and a new transaction for direct labor are summarized below.

Friends Corporation used $1,000 of paint and $4,000 of plastic and metal parts in the production. The journal entry to record the transfer of this $5,000 from direct raw materials to work-in-process was as follows (entry from the Raw Materials topic repeated here for convenience):

Factory overhead costs in amount of $1,100 were transferred to the Work-in-Process Inventory account during March 20X9 (entry from the Factory Overhead topic repeated here for convenience):

In addition, let’s assume that during March Friends Corporation also incurred $2,000 on account for direct labor costs, which is recorded as follows:

The above entries show the added cost to the Work-in-Process Inventory account.

Once the products are finished and transferred out to the Finished Goods Inventory account, the Work-in-Process Inventory account is credited (decreased) and the Finished Goods Inventory account is debited (increased). The credit to the Work-in-Process Inventory account represents the cost of the goods manufactured (COGM), while the debit in the Finished Goods Inventory account shows the cost of goods ready to be sold.

For example, during March Friends Corporation finished producing valves with the manufacturing cost of $8,600 and posted the following the journal entry:

The summary of the Work-in-Process Inventory T-account activity for March 20X9 looks as follows.  Assume that the beginning balance was $5,000:

Illustration 13: Friends Corporation work-in-process inventory T-account