Raw Materials
Unprocessed inputs purchased by manufacturers that will be converted into finished products through the production process.
What is Raw Materials?
Raw materials are the basic inputs that a manufacturing company purchases to produce its finished goods. They are classified as inventory on the balance sheet until consumed in the production process. Raw materials fall into two categories: direct materials that become a physical part of the finished product, and indirect materials used in production but not incorporated into the final good. Accurate tracking of raw material costs is essential for calculating cost of goods sold, valuing inventory, and controlling production expenses.
Example
An automobile manufacturer records steel, aluminum, glass, and rubber as raw materials inventory on its balance sheet. As these inputs move into production, their cost is transferred to work-in-progress inventory and eventually to finished goods when vehicles are completed.
Source: FASB ASC 330 — Inventory