raw material

Examples of raw material in the following topics:

• Current Guidelines for Expense Recognition

  • Two weeks later, the raw material is delivered to the company's warehouse.
  • Under the matching principle, the expense related to the raw material is not incurred until delivery.
  • Using the same example from above, the delivery of the raw material is insufficient to cause the cost of those goods to be recognized as an expense.
  • The raw material will be used to make items that will be sold to the public.
  • When the items that used the raw materials are sold, then the costs related to the raw material are recognized.

• Categories of Goods Included in Inventory

  • Most manufacturing organizations usually divide their "goods for sale" inventory into raw materials, work in process, and finished goods.
  • Raw materials - Materials and components scheduled for use in making a product.
  • A raw material is the basic material from which a product is manufactured or made.
  • Latex, iron ore, logs, crude oil, and salt water are examples of raw materials.
  • Distinguish between the raw materials, work in process, finished goods and goods for resale

• Internal Controls

  • Internal controls over a company's inventory are meant to ensure that management has an accurate count of what materials and goods it has available for sale and to protect those goods from being spoiled, stolen or otherwise made unavailable for sale.
  • For example, assume a set amount of raw material is acquired by the company.
  • When the company receives that material, the amount should be noted in the inventory management system.
  • As the material is processed into the goods for resale, the amount of raw material used should be deducted from the "raw material inventory" and the amount of goods that result from the process should be added to the "finished goods inventory. " As each finished item is sold, the "finished goods inventory" should be decreased by that amount.

• Components of Inventory Cost

  • Parts and raw materials are often tracked to particular sets (e.g., batches or production runs) of goods, then allocated to each item.
  • Overhead costs are often allocated to sets of produced goods based on the ratio of labor hours or costs or the ratio of materials used for producing the set of goods.

• Activities of the Business: Financing, Investing, and Operating

  • This could include purchasing raw materials, building inventory, advertising, and shipping the product.

• Advantages of LIFO

  • FIFO and LIFO Methods are accounting techniques used in managing inventory and financial matters involving the amount of money a company has tied up within inventory of produced goods, raw materials, parts, components, or feed stocks.

• Operating Expenses, Non-Operating Expenses, and Net Income

• Costing Methods Overview

  • Note that a manufacturing business's inventory will consist of work in process, or unfinished goods, and finished inventory; the costs of unfinished and finished inventory contain a combination of costs related to raw materials, labor, and overhead.

• Working Capital Management Analysis

  • Cash flows can be evaluated using the cash conversion cycle -- the net number of days from the outlay of cash for raw material to receiving payment from the customer.

• Nature of Inventory

  • A canned food manufacturer's materials inventory includes the ingredients to form the foods to be canned, empty cans and their lids (or coils of steel or aluminum for constructing those components), labels, and anything else (solder, glue, etc.) that will form part of a finished can.
  • The firm's work in process includes those materials from the time of release to the work floor until they become complete and ready for sale to wholesale or retail customers.
  • Raw materials - materials and components scheduled for use in making a product.
  • Work in process, WIP - materials and components that have began their transformation to finished goods.