Multiple Choice
The journal entry to record indirect materials costs used in production includes a debit to which account?
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2. Transaction Analysis
Journal Entries: Debits and Credits
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Any purchased materials that will go into the finished product are first recorded in the:
A
Work in Process Inventory account
B
Finished Goods Inventory account
C
Raw Materials Inventory account
D
Cost of Goods Sold account
Verified step by step guidance1
Understand the concept of inventory accounts: In manufacturing, inventory is categorized into three main accounts—Raw Materials Inventory, Work in Process Inventory, and Finished Goods Inventory. Each account represents a different stage in the production process.
Recognize the role of Raw Materials Inventory: This account is used to record the cost of materials purchased that will be used in the production process but have not yet been put into production.
Differentiate between Work in Process Inventory and Finished Goods Inventory: Work in Process Inventory represents goods that are partially completed, while Finished Goods Inventory represents completed products ready for sale.
Understand why purchased materials are recorded in Raw Materials Inventory: When materials are purchased, they are not yet part of the production process, so they are initially recorded in the Raw Materials Inventory account.
Relate this to Cost of Goods Sold: The Cost of Goods Sold account is used to record the cost of products that have been sold, not the cost of materials purchased. Therefore, purchased materials are not recorded here.
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