The Purchase of Raw Materials on Account in a Process

question 39

Multiple Choice

The purchase of raw materials on account in a process costing system is recorded with a:

• A) Debit to Purchases and credit to Cash.
• B) Debit to Purchases and a credit to Accounts Payable.
• C) Debit to Raw Materials Inventory and a credit to Accounts Payable.
• D) Debit to Accounts Payable and a credit to Raw Materials Inventory.
• E) Debit to Goods in Process Inventory and a credit to Accounts Payable.

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Definitions:

Outstanding Cheques

Cheques issued by a company that have not been deposited or cashed by the recipient by the end of the accounting period.

Liquidity

The ease with which an asset can be converted into cash without significantly affecting its price, reflecting the ability of a company or individual to meet immediate and short-term obligations.

Precautionary Motive

The desire to hold cash or other liquid assets to meet unexpected needs and financial emergencies.

Financial Slack

The availability of excess funds or resources in a company that allows for flexibility in operations, strategic investments, or weathering financial uncertainties without immediate financial stress.