What account 1010 is for
When an organisation produces something, it first needs "raw material": fabric for a tailor, flour for a baker, fat for a soap factory. While these items sit in the warehouse they are still the organisation's property, and they have to be tracked just like money. Paragraph 86 of the Instructions to NAS No. 21 divides materials into nine sub-accounts, and 1010 "Raw materials and supplies" is the first of them.
Under paragraph 90, four groups of valuables are kept in 1010:
- a) raw materials and basic materials: items that become part of the finished product or form its basis;
- b) auxiliary materials: items consumed in the production process or for business needs, or used for technical purposes;
- c) agricultural products obtained and prepared for processing;
- d) feed and bedding (those produced in-house are kept at planned cost during the year and adjusted to actual cost at the end of the year).
An asset account: what that means
In the chart of accounts, group 1000 has type "A" (asset). Under paragraph 3 of NAS No. 21, in an asset account the balance and increases of resources are shown on the debit side and decreases on the credit side. Applied to 1010:
- material comes into the warehouse: 1010 is debited;
- material goes to the workshop, the office, outside the organisation or is lost: 1010 is credited;
- the balance is a debit balance and shows how many soums' worth of raw materials are in the warehouse right now.
At what value material is carried
Under paragraph 87, material is shown at whichever of two values is lower: actual cost (purchase price or production cost) or market value (net realisable value). Where necessary (when there are very many types of material, when internal movement is fast, in agriculture and in other cases), records may also be kept at an accounting price (planned cost, average purchase price, wholesale price and others) (para. 88); in that case the difference from actual cost is calculated every month and accumulated in 1610 "Material cost variances" (para. 89).
Receipts can be recorded in two ways
Under paragraph 102, the organisation chooses one of them in its accounting policy:
| Method | How a receipt is recorded |
|---|---|
| 1510 is not used | Material goes straight to 1010: Dr 1010 Cr 6010 (para. 104, row 1) |
| 1510 is used | First Dr 1510 Cr 6010 (para. 114, row 2), then on arrival at the warehouse Dr 1010-1090 Cr 1510 (para. 114, row 9) |
Under the second method, the month-end balance of 1510 shows material in transit or not yet delivered to the warehouse (para. 113).
What goes to the debit side
All rows of the table in paragraph 104 in which group 1000 (including 1010) is debited:
| Where the material came from | Credit | Para. 104 |
|---|---|---|
| Purchase from a supplier | 6010 | row 1 |
| A founder's share contribution | 4610 | row 3 |
| A separate division, branch or subsidiary | 6110, 6120 | row 4 |
| Free of charge from another party | 8530 | row 5 |
| Transport and procurement costs added to cost | 1510 | row 7 |
| Receipt at actual cost when 1510 is used | 1510 | row 9 |
| Made by the organisation itself | 2310 | row 10 |
| A claim lodged earlier was rejected, the amount goes back to materials | 4860 | row 11 |
In addition, material returned unused from a workshop also comes back into 1010: from primary production Dr 1010-1090 Cr 2010 (para. 120, row 22), from general production needs Dr 1010 Cr 2510 (para. 130, row 15).
What goes to the credit side
Under paragraph 103, when material is used in production or for other business purposes, group 1000 is credited and an expense account is on the other side; when it is sold outside the organisation, 9220 is on the debit side. Which account it is depends on where the material went. All rows of the table in paragraph 104 in which group 1000 (including 1010) is credited:
| Where the material went | Debit | Para. 104 |
|---|---|---|
| A defect found after receipt, claim against the supplier | 4860 | row 6 |
| Primary workshop, auxiliary workshop, general production needs, service facility | 2010, 2310, 2510, 2710 | row 12 |
| Administrative needs (office) | 9420 | row 13 |
| Rectifying defective products | 2610 | row 14 |
| Disposed of outside the organisation (sold) | 9220 | row 16 |
| Lost in a natural disaster | 9720 | row 17 |
| Shortage found in a stock-take | 5910 | row 18 |
The remaining rows of the table concern other sub-accounts: 1090 (rows 2 and 8), 1060 (row 15), 1050 (row 19).
Points to watch
- Not every material is 1010. Production waste, offcuts, scrap metal and defective products that cannot be rectified are kept in 1090 "Other materials" (para. 100). For example, material obtained from a fixed asset that has been taken out of service is received with Dr 1090 Cr 9210 (para. 104, row 2).
- Do not confuse it with containers. Containers (other than those used as business equipment) go to 1060, but items intended for additional fitting of railway wagons, barges, aircraft and ships to keep cargo intact and safe are accounted for in 1010 (para. 96).
- Analytical accounting. Analytical accounting for group 1000 is kept by storage location and by name, type, grade and size of material (para. 103). So the quantity on the storekeeper's card and the amount in the accounting records should move in the same direction.
- Material shortage: which row (practical tip). For a material shortage found in a stock-take, the table has the row Dr 5910 Cr 1010 (para. 104, row 18). There is a separate row for the case where an inventory shortage is recovered from the person at fault: Dr 4730 Cr 1010-2990 (para. 206, row 9). Which entry to choose depends on the stock-take result and the documents; do not record it on a guess.
- Credit balance (practical tip). 1010 is an asset account, and you cannot use material that is not in the warehouse. If the books show a credit balance, usually a receipt document has been left out or an issue has been recorded twice.
Main journal entries 12
Debit and credit are as in the model table of Appendix 2 to NAS No. 21. The transaction text briefly restates the table row.
| Transaction | Debit | Credit | Source |
|---|---|---|---|
| Material received from a supplier (where 1510 is not used) | 1010–1090 | 6010 | NAS No. 21, para. 104, row 1 |
| A founder contributed material towards their share in the charter capital | 1010–1090 | 4610 | NAS No. 21, para. 104, row 3 |
| Material received free of charge from another party | 1010–1090 | 8530 | NAS No. 21, para. 104, row 5 |
| Where 1510 is used, material received into the warehouse at actual cost | 1010–1090 | 1510 | NAS No. 21, para. 104, row 9 |
| Material made by the organisation itself (in auxiliary production) received | 1010–1090 | 2310 | NAS No. 21, para. 104, row 10 |
| Unused material returned to the warehouse from primary production | 1010–1090 | 2010 | NAS No. 21, para. 120, row 22 |
| Material issued to the primary or auxiliary workshop, for general production needs or to a service facility | 2010, 2310, 2510, 2710 | 1010–1090 | NAS No. 21, para. 104, row 12 |
| Material issued for administrative needs | 9420 | 1010–1090 | NAS No. 21, para. 104, row 13 |
| A claim lodged against the supplier for a defect found after receipt | 4860 | 1010–1090 | NAS No. 21, para. 104, row 6 |
| Cost of material sold (disposed of) outside the organisation written off | 9220 | 1010–1090 | NAS No. 21, para. 104, row 16 |
| A material shortage found in a stock-take | 5910 | 1010–1090 | NAS No. 21, para. 104, row 18 |
| The amount of an inventory shortage recorded as a debt to be recovered from the person at fault | 4730 | 1010–2990 | NAS No. 21, para. 206, row 9 |
Example
"Nurota sovun" LLC (a fictional company) makes laundry soap. Its accounting policy does not use 1510: material is received into the warehouse straight into 1010. At the start of the month the 1010 balance was 14,000,000 soums. Amounts exclude VAT; VAT accounting is not included in this example.
| No. | Transaction | Dr | Cr | Amount, soums | Basis (NAS No. 21) |
|---|---|---|---|---|---|
| 1 | Technical fat received from a supplier | 1010 | 6010 | 40,000,000 | para. 104, row 1 |
| 2 | A founder contributed caustic soda towards their share | 1010 | 4610 | 6,000,000 | para. 104, row 3 |
| 3 | Fat and soda issued to the soap-boiling workshop | 2010 | 1010 | 38,000,000 | para. 104, row 12 |
| 4 | Auxiliary material issued for cleaning workshop equipment | 2510 | 1010 | 1,500,000 | para. 104, row 12 |
| 5 | Unused soda returned from the workshop to the warehouse | 1010 | 2010 | 900,000 | para. 120, row 22 |
| 6 | A batch of fat proved substandard, claim lodged against the supplier | 4860 | 1010 | 1,200,000 | para. 104, row 6 |
| 7 | Surplus fat sold to a neighbouring company (cost) | 9220 | 1010 | 2,000,000 | para. 104, row 16 |
| 8 | Soda shortage found in a stock-take | 5910 | 1010 | 300,000 | para. 104, row 18 |
In transaction 7 only the cost of the material is taken out of 1010; the sales revenue is recorded separately and is not included in this table.
Month-end figures for 1010:
| Item | Amount, soums |
|---|---|
| Opening balance | 14,000,000 |
| Debit turnover (1, 2, 5) | 46,900,000 |
| Credit turnover (3, 4, 6, 7, 8) | 43,000,000 |
| Closing balance | 17,900,000 |
Check: 14,000,000 + 46,900,000 − 43,000,000 = 17,900,000 soums.
Note one thing: transactions 3 and 4 both went to the workshop, but their debits differ. The fat and soda that became part of the soap went to 2010, while the material used to clean the equipment went to 2510. Costs accumulated in 2510 are later allocated to 2010 or 2310 (para. 129). This split helps to calculate the cost of the soap correctly (practical tip; example prepared by the author).