Aaron is drawing up his budgets for the financial year to 31 December 2021. In December 2021, he is planning to purchase raw materials for his business which will cost him £55,000. The terms of trade with his supplier allow Aaron 40 days in which to pay for raw materials purchased. To which budgets will Aaron allocate the £55,000 raw material cost?

Question

Quizplus · Accepted Answer

The cost of raw materials will be included in the budgeted statement of profit or loss as an expense and in the budgeted statement of financial position as a liability (accounts payable) since it is not paid immediately.

Aaron Is Drawing Up His Budgets for the Financial Year