Raw Materials

This Current Assets code records raw materials. As an asset account, it normally carries a debit balance: debit entries increase the balance and credit entries decrease it.

Real-world examples

Manufacturing

A furniture maker holds timber, foam and fabric bought in bulk ahead of production — valued at purchase cost only, before any labour or overhead is added, which is what separates 1004 from 1002 (Work in Progress). As materials are issued to a production run, the value moves out of 1004 and into WIP; nothing here reflects processing that's already happened.

Food production

A food manufacturer's raw materials are perishable and turn over fast, so the balance is typically small relative to purchase volume. Businesses in this sector usually run batch and lot tracking alongside the nominal ledger for food safety and traceability — a legal requirement that a business holding, say, steel stock simply doesn't have to think about.

Construction

Most building contractors don't hold a meaningful raw materials balance at all: materials are usually bought for a specific job and used within days, so they're expensed straight to a cost of sales code like 5000 (Materials Purchased) rather than sitting on the balance sheet as stock. 1004 tends to matter only for firms holding materials centrally across multiple sites and drawing them down as needed.

Commonly confused with

Because code 1003 (Finished Goods) sits right next to this one in Current Assets, it's a common mis-posting target. Code 1004 is specifically for raw materials, while 1003 covers finished goods — similar in nature, but keeping them separate is what makes the current assets section of your management accounts meaningful rather than a single lumped total.

What a mis-posting here costs you

Because Raw Materials sits within Current Assets, an error here overstates or understates working capital on the balance sheet rather than affecting reported profit — it won't move the bottom line, but it can make the business look more, or less, liquid than it actually is.

Other codes in Current Assets