Question

Cost of raw materials is debited to Raw Materials Inventory when the

a) Materials are ordered.
b) Bill for the materials is paid.
c) Materials are received.
d) Materials are put into production

Answer 1

The cost of raw materials is debited to Raw Materials Inventory upon receipt of the materials, aligning with when the economic benefits are realized by the company.

Step-by-step explanation:

The cost of raw materials is debited to Raw Materials Inventory when the materials are received, which is option (c). This is the point at which the economic value is transferred to the company and it assumes the risks and rewards associated with the materials.

The accounting principle that supports this transaction is based on the concept of matching expenses with revenues, where costs are recognized in the period in which the economic benefits are realized, and that is typically upon receipt of the goods.

For instance, when a pizza restaurant receives the flour, yeast, and other ingredients necessary for making pizzas, it would record these costs in the Raw Materials Inventory account.