Raw Material Journal Entry

Overview

In accounting, the raw material transactions start with the purchase of the materials from the company’s suppliers. Likewise, the raw material journal entry will start at the date of the inventory purchase.

In this case, the purchased raw materials are usually stored in the storeroom and only be issued out for production when they are requested.

In the job order costing, the raw materials used in the manufacturing process will be assigned to the manufacturing accounts, such as work in process inventory account and manufacturing overhead account.

Raw material journal entry

Purchase raw materials

The company can make the journal entry of raw materials when it makes the purchase by debiting the raw materials account and crediting the accounts payable or cash account.

In this journal entry, the raw material is the inventory that is stored in the storeroom after the purchase. The cost of the raw materials that can be both direct raw materials and indirect raw materials will be assigned to manufacturing accounts later when it is issued for production.

Likewise, the cost of the raw materials will be assigned to the work in process inventory account and the manufacturing overhead account in the job order costing.

Issue raw materials for production

Under the accounting of job order cost, the company can make the journal entry when it issues raw materials for production by assigning the cost of the raw materials to manufacturing accounts with the debit of the work in process inventory and manufacturing overhead account and the credit of the raw materials account.

Alternatively, to make it easier to understand, this journal entry can be broken down into two by transferring the direct raw materials to working in process and indirect raw materials to manufacturing overhead as below:

Direct raw materials

Indirect raw materials

Example

For example, the manufacturing company ABC purchases the raw materials for $13,000 on credit. And during the period, the company has used $8,000 of direct raw materials and $2,000 of indirect raw materials in the manufacturing process.

In this case, when the company ABC purchases the raw materials, it can make the journal entry as below:

In this journal entry, raw materials are recorded as the cost in the inventory. Likewise, the balance of inventory will increase by $13,000.

As the company ABC has used the raw materials of $10,000 (8,000 + 2,000) during the period, it can assign this cost to the manufacturing accounts with the journal entry below:

After this journal entry, the balance of raw materials in the inventory will be reduced by $10,000.