In a production enterprise, the raw material is used in a particular process and processed to produce a finished product. The raw materials undergo accounting treatment special. Compta-Facile unveils it here by answering the question: how to account for raw materials?
Accounting for the purchase of raw materials
The raw materials are purchased for processing into finished products during the production process. They are therefore completely consumed during their first use and disappear, consequently, concomitantly. These expenses are assimilated, in accounting terms , to expenses . They must be registered in Account 601 “Stored Procurement – Raw Materials (and Supplies)” .
Here is how to account for a purchase invoice for raw materials in accounting:
We debit :
- Account 601 “Stored Purchases – Raw Materials (and Supplies)”,
- Account 44561 “VAT deductible on other goods and services”
- And account 401 “Suppliers” is credited .
At the time of payment of the invoice, the extinguishment of the debt and the reduction of the cash:
- Account 401 “Suppliers” is debited ,
- And account 512 “Bank” is credited .
All costs incidental to purchases of raw materials are generally included in their purchase price (eg shipping costs or customs duties). They will therefore appear in Account 601 “Stored Purchases – Raw Materials (and Supplies)”. They can also be entered in account 6081 “Incidental expenses on purchases of raw materials”.
Example : a company buys 50,000 euros of raw materials. The VAT is 10 000 euros. They are delivered and invoiced on 29/07 / N. The payment is made on 15/08 / N. The purchase invoice must be posted on 29/07 / N in a purchase journal:
- Debit from Account 601 “Stored Purchases – Raw Materials (and Supplies)” for € 50,000,
- Debit from account 44561 “VAT deductible on other goods and services” for € 10,000,
- And credit of account 401 “Suppliers” for 60 000 €.
- The payment of 15/08 / N will be translated as follows in a bank newspaper:
- Debit from account 401 “Suppliers” for € 60,000,
- Credit from account 512 “Bank” for € 60,000.
- Accounting for the adjustment of unprocessed raw materials
As the year-end closes, the company must identify in quantity and value all the raw materials that it has not yet used and which will consequently be transformed during the following financial year . They therefore constitute stocks of raw materials.
The accounting entry for raw materials is as follows:
Account 31 is debited “Inventories of raw materials (and supplies)”,
And account 6031 “Change in inventories of raw materials (and supplies)” is credited .
Once the financial year and the new accounting year have been opened, this entry must be reversed (ie recorded upside down):
Account 6031 “Inventory Change in Commodities (and Supplies)” is debited ,
And account 31 “Inventories of raw materials (and supplies)” is credited .
A financial indicator can be calculated using these data: the acquisition cost of raw materials consumed.
Cost of acquisition of raw materials consumed = Initial inventories – Final inventories + Purchases during the year
Example : the initial stock of raw materials of an enterprise is 15 000 euros. During the year, it made purchases totaling € 35,000. During the closing works, it assessed its stock of raw materials at 5,000 euros. The recording of the final stocks is as follows:
Debit from account 31 “Inventories of raw materials (and supplies)” for € 5,000,
Credit from account 6031 “Change in stocks of raw materials (and supplies)” for € 5,000.
The cost of purchasing raw materials consumed during the year is 45,000 euros (15,000 + 35,000 – 5,000).
Conclusion : purchases of raw materials are recorded in account 601 “Purchase of raw materials (and supplies)”. At the end of the financial year, raw materials in inventory should be credited to account 6031 “Change in inventories of raw materials (and supplies)”.