Debitoor Dictionary

Accounting terms explained in a simple way

Over 150 Articles for Founders and Entrepreneurs

Raw materials – What are Raw materials?

Definition: The raw materials are the basic materials from which goods and products are made.

Usually, raw materials are natural resources – for example oil, iron and wood are all common raw materials used in the production of goods and products. Often, raw materials are altered in some way before being used in the manufacturing process.

There are two subcategories of raw materials: direct materials and indirect materials. Direct raw materials are those which will be directly incorporated into the final product, e.g. the wood used to build a table. Indirect materials on the other hand are those which are consumed during the production process, e.g. the lubricant, rags, light bulbs, etc. which are used in manufacturing facilities.

Raw materials stock

Raw materials stock is the total value of all of a company’s raw materials currently in stock which have not entered work-in-process or finished goods production yet. The value of a company’s stock of raw materials appears as a current asset on the company’s balance sheet.

Initially, raw materials are recorded into a stock asset account by debiting to the raw materials stock account and crediting the accounts payable account.