Raw materials

Raw materials are the constituent parts input into a production process, where they are transformed into finished goods. Raw materials are tracked in a separate inventory account at their historical cost. If their market value declines prior to being used, their recorded cost is written down to market value (known as the lower of cost or market rule). Since raw materials can be damaged or become obsolete, and require working capital funding to hold, organizations try to keep only a modest amount of raw materials on hand.

Related Courses

Accounting for Inventory 
Inventory Management