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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.


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