What are the journal entries to record the purchase of raw materials?
When a company purchases raw materials, the raw materials are recorded into inventory, which results in a debit to raw materials. Typically, a company will pay for raw materials on credit, which would result in a credit to accounts payable.
As the company uses the raw materials in the production process, the material will transfer to work-in-process and eventually finished goods. Once the item is in finished goods, it can be sold. When the item is sold, cost of goods can finally be recognized, and the item is removed from inventory!
The visual below details how raw materials flow through the production process and eventually recognized as a cost of good sold when the item is sold.
Back To All Questions
You might also be interested in...
-
What are cost of goods sold?
Cost of goods sold represents the total amount of expenses that is incurred to produce the product or service that the company sells to its customers. There is a level of subjectivity involved when determining whether a cost is a cost of good sold or an operating expense. Cost of goods sold generally includes direct...
-
What is an inventory rollforward?
An inventory rollforward is prepared to understand the movements in the balance sheet and income statement. The inventory rollforward helps us understand beginning and ending inventory, purchases of materials throughout the year, as well as cost of goods sold. The visual below illustrates how an inventory rollforward is prepared. An inventory rollforward can be used...
-
How is inventory reflected on the cash flow statement?
Any changes in the inventory balance would be reflected in the operating section of the cash flow statement. When the company purchases inventory related items, that increases the inventory balance and represents a cash outflow. The inventory balance decrease when items are sold, and the company recognizes the sale and costs of good sold. A...
What are cost of goods sold?
Cost of goods sold represents the total amount of expenses that is incurred to produce the product or service that the company sells to its customers. There is a level of subjectivity involved when determining whether a cost is a cost of good sold or an operating expense. Cost of goods sold generally includes direct...
What is an inventory rollforward?
An inventory rollforward is prepared to understand the movements in the balance sheet and income statement. The inventory rollforward helps us understand beginning and ending inventory, purchases of materials throughout the year, as well as cost of goods sold. The visual below illustrates how an inventory rollforward is prepared. An inventory rollforward can be used...
How is inventory reflected on the cash flow statement?
Any changes in the inventory balance would be reflected in the operating section of the cash flow statement. When the company purchases inventory related items, that increases the inventory balance and represents a cash outflow. The inventory balance decrease when items are sold, and the company recognizes the sale and costs of good sold. A...
