Raw Materials Consumption Accounting

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Mohanraj J

1221 Points Joined March 2018

Dear Friends,

Pls assist me the below Raw Materials consumption accounting process;

June month Opening stock 50 Lakh,
Purchases 30 Lakhs, Consumed 40 Lakhs, Closing Stock 40 Lakhs.

FG Sold 30 Lakhs, Balance FG 10 Lakhs. So, can we show RM consumption 40 Lakhs in P&L under COGS and 10 Lakh as a FG in Balance Sheet or sold value only need to show in the P&L? If yes, balance consumption 10 Lakh where we will account and where it will reflect?.

Replies (6)

yasaswi gomes

My grammar is 💯 good I

7296 Points Joined March 2019

Sales 30 lakhs

Closing inventory in balance sheet 50 lakhs

Cogs is 30 lakhs.

Mohanraj J

1221 Points Joined March 2018

Did u mean closing Inventory 50 Lakh including unsold FG 10 Lakh? So, 10 Lakh can we show as a FG or RM? If 30 Lakh we shown in PL under COGS, what about PL impact for 10 Lakhs

yasaswi gomes

My grammar is 💯 good I

7296 Points Joined March 2019

Yes. 10 lakhs included. Closing stock, everything is ending inventory.

yasaswi gomes

My grammar is 💯 good I

7296 Points Joined March 2019

The raw materials are already in closing inventory. To pl statement will not get impacted because it has reduced expenses through cogs and thereby balancing the equation assets= equity plus liabilities. I have just now done a small excel modelling and it does tally the balance sheet equation irrespective of what method is used for inventory valuation (Cost or NRV) method.

Now what happens is, when inventory value decreases:

Asset value decreases

Gross and net profit decreases.

Net profit reduction impact is carried forward to liabilities section through retained earnings.

this is how it balances assets, equity and liabilities. Finally, if inventory valuation increases, assets will increase, liabilities will increase tallying the balance sheet.