Double entry to account for materials used in production?

Double entry to account for materials used in production?

• A. Dr Materials, Cr Production Or WIP
• B. Dr Payables Or Bank, Cr Materials
• C. Dr Overheads, Cr Materials
• D. Dr Wages, Cr Materials

Answer: (B)

When materials are used in production their cost is moved from the Materials stock account into the production cost in progress. This shows that the raw materials have been consumed and are now part of the work being completed. The normal double-entry for this is to debit the Work in Progress (production) account and credit the Materials (raw materials) account. The idea is to reduce the material stock and increase the cost attached to the goods being produced. The option that indicates debiting Payables or Bank and crediting Materials reflects recording a payment or liability for materials, i.e., the act of purchasing materials, not their consumption in production. That entry would be appropriate when materials are initially bought (to recognize the asset and the obligation or outflow of cash), but it does not record the transfer of those materials into production. In a production costing context, the key move is from Materials to Production/WIP, not from Payables/Bank to Materials.

When materials are used in production their cost is moved from the Materials stock account into the production cost in progress. This shows that the raw materials have been consumed and are now part of the work being completed. The normal double-entry for this is to debit the Work in Progress (production) account and credit the Materials (raw materials) account. The idea is to reduce the material stock and increase the cost attached to the goods being produced.

The option that indicates debiting Payables or Bank and crediting Materials reflects recording a payment or liability for materials, i.e., the act of purchasing materials, not their consumption in production. That entry would be appropriate when materials are initially bought (to recognize the asset and the obligation or outflow of cash), but it does not record the transfer of those materials into production. In a production costing context, the key move is from Materials to Production/WIP, not from Payables/Bank to Materials.