It represents goods on a balance sheet that have not yet been converted to work-in-progress or a finished product. Companies often buy, acquire, or extract raw materials for use, then report raw materials as an asset. Then, as the company uses raw materials in the production of finished goods, it converts the raw materials into what are tax benefits products it can sell to consumers. When a company uses raw materials inventory in production, it transfers them from the raw materials inventory to the work-in-process inventory. When a company completes its work-in-process items, it adds the finished items to the finished goods inventory, making them ready for sale.

1. For example, components such as the screen, integrated circuits, camera modules and buttons are the direct materials involved in the production of a smartphone.
2. For example, the operations of a farm are substantially different from an oil drilling rig; companies that require both raw materials must be mindful of how to most efficiently source the materials.
3. The classification of materials as direct is determined by their significance and direct involvement in the manufacturing process.

A small business guide to direct materials

Presentation of Direct Materials

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