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Work in progress

A term usually found alongside stock-in-trade in a balance sheet: i.e. ‘stocks and work in progress’. It represents the value of work commenced but not completed. In a manufacturing business, this will be in partly finished goods. In a contracting business, it will be in the form of uncompleted contracts. Difficulties arise in valuation, one problem, particularly on a long-term contract, being whether to include part of the anticipated profit and how to deal with cash paid in advance. The traditional method is to take profit into account in the same proportion as the amount paid is to the work certified. This applies to contractors’ accounts and profit is normally reduced by any anticipated losses. The valuation is important; often a large proportion of total assets is represented by ‘stocks and work in progress’.

Reference: The Penguin Business Dictionary, 3rd edt.