WIP Inventory Account 
In manufacturing companies, it is common business practice for there to be a time interval between production commencement and completion. During this period, the inventory value of the in-process products is usually posted to a work-in-progress account, for example, WIP inventory account. At the end of the company’s financial period, the transactions that make up the value of the WIP account must be easily auditable.
In SAP Business One, the postings to the WIP inventory account are automatically reconciled as follows to facilitate the accounting process:
In the case of a standard or special type of production order with the “Manual” issue method, the reconciliation process is as follows:
When you create the “Issue for Production” document, the WIP inventory account is debited with the total cost of issued components.
When you create the “Receipt from Production” document, the WIP inventory account is credited with the cost of the finished product.
If there is a variance in the WIP inventory account postings between the component cost and the product cost, the variance is posted when the production order is closed. As a result, the overall WIP inventory account balance in respect of the production order postings is brought to zero, and these WIP inventory account postings are fully reconciled.
In the case of a standard or special type of production order with the “Backflush” issue method, the reconciliation process is as follows:
The components for production are issued automatically.
When you create the “Receipt from Production” document, the WIP inventory account is debited with the total cost of issued components, and credited with the cost of the finished product.
If there is a variance in the WIP inventory account postings between the component cost and the product cost, the variance is posted when the production order is closed. If there is no variance in the WIP inventory account when the production order is closed, a zero value posting is still made. The overall WIP inventory account balance in respect of all the production order postings is, therefore, zero following production order closure, and these WIP inventory account postings are automatically fully reconciled.
In the case of a disassembly type of production order with either “Manual” or “Backflush” issue method, the reconciliation process is similar to the above two cases, except that the WIP inventory account is debited with the cost of the product and credited with the cost of the disassembled components.
The postings to the WIP inventory account are automatically fully reconciled only after the corresponding production order is closed, no matter if the production order is completed with several rounds of issue and receipt, or if an issue or a receipt is related to more than one production order.
However, in the above cases, if the WIP inventory account has been fully, manually reconciled before the automatic system reconciliation takes place, SAP Business One does not perform the system reconciliation.
Example
You create a standard production order as follows and release it:
Product: Tool Kit
Planned Quantity: 1
Item
Base Quantity
Planned Quantity
Issue Method
Item Cost
Hammer
1
1
Backflush
20
Screw Driver
2
2
Backflush
10
You create a “Receipt from Production” document based on the production order as follows:
Item
Item Cost
Planned
Completed
Tool Kit
50
1
1
The corresponding journal entry posting is as below:
Account
Debit
Credit
WIP Inventory Account
50
Inventory Account
50
Inventory Account
40
WIP Inventory Account
40
You close the production order, and the corresponding journal entry posting is as follows:
Account
Debit
Credit
WIP Inventory Account
10
WIP Inventory Variance Account
10
SAP Business One automatically reconciles the WIP inventory account as follows:
Account |
Debit |
Credit |
Reconciliation Amount |
Balance Due |
|---|---|---|---|---|
WIP Inventory Account |
50 |
50 |
0 |
|
WIP Inventory Account |
40 |
|||
WIP Inventory Account |
10 |