Work In Process and Sales in Process are balance sheet holding accounts that are designed to handle the GAAP principle known as the "Matching Principle".  The matching principle basically states that cost for a job should be recognized in the same period as the revenue that they created.  So the matching principle matches cost entries to occur at the same time as the revenue entries.  Basically Work In Process and Sales In Process are balance sheet holding accounts that hold cost and revenue off the income statement until the order closes so that the costs can be matched to the revenue and hit the general ledger at the same time. 

WIP and SIP are balance sheet accounts that hold onto vouching and billing until the order is vouched and billed complete and the order is closed.  Balance sheet accounts do not effect the income statement so that if vouching is completed in one accounting period and billing is completed in another, the income statement will not take a charge to Cost of Goods Sold with no offsetting entry to the Sales account.

WIP-SIP is turned on in the Order Processing Setup (SEO) menu under Order Type Code Maintenance, under the field labeled Pass Payables Through WIP?  WIP-SIP must be set to on, or off, by type code.  There are some order types which you may wish to have WIP-SIP turned off and some that you may wish to have turned on.  The orders which we suggest that WIP-SIP be turned on for are the P, D, and C orders.  The orders which may be left off all the time are F and Customer Owned Inventory release orders.  The decision is up to the user.  Most of our users have WIP-SIP turned on for all order types.

If WIP and SIP is turned off, for example, on the D orders, the following would be the journal entries created by vouching and billing the order.

               DEBIT                        CREDIT

Vouching        Cost of Sales

               Freight In                A/P

Billing                A/R                        Sales

                                       Freight Out

                                       Sales Tax

If WIP and SIP are turned on for this same order, the following are the journal entries created.

               DEBIT                        CREDIT

Vouching        WIP

               Freight In                A/P

Billing                A/R                        SIP

                                       Freight Out

                                       Sales Tax

When the order closes, the following journal entries are created automatically.

               DEBIT                        CREDIT

               Cost of Sales                WIP

               SIP                        Sales

WIP-SIP reversals happen automatically and you have no control over the reversals.

At any given time, WIP and SIP can be audited by running the WIP Audit Report and the SIP Audit Report.  These two reports are found on the Open Order Reports (O/L) menu.  These reports will tell you which order, how much money, and to which accounts it will make the reversals to.  It is important to run these reports periodically to ensure that there are no open orders sitting in WIP or SIP that shouldn't be and that there are not closed orders still showing on the WIP or SIP Audit Reports.