Hold Our Hand to Explore Your Knowledge on Accounting for Byproducts
On time of manufacturing process, with the main product, several other products may be produced which have small sale value in comparison with the main product. These are known as by-product. So we can say that it is secondary product with fewer sales value, additionally produced with the principal product. The accounting method of this kind of material is selected on the basis of some specific condition and situation.
- At the point of splitting off when products are diversified.
- After an additional processing.
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The accounting methods of a byproduct are divided into two distinct categories they are:
- Sales method or non-cost method and its categories –
Some time, sales procedure of a byproduct is lagging behind hence, a huge time gap is created unintentionally in between manufacturing time and selling time. To balance this time gap, sale values of these secondary goods are taken as miscellaneous earnings and keep the record as a credit or loss.
In some circumstances, joint cost of principal goods and secondary goods are subtracted from the joint sales value. In this case, the stock value of secondary product is recorded as zero in the balance sheet at the time of closing.
If sales value is deducted from manufacturing cost or selling cost, then the manufacturing cost of main items are fluctuated by default hence, it is valued on the basis of total cost or selling cost.
Other expenditures for distribution and transportation cost are deducted directly from the revenue that is earned by selling that item. The entire amount some time is reduced from the total production cost and some time it recorded as credit to process account.
In some cases selling cost and distribution cost, both are taken as processing cost at the split of point. And these costs are reduced directly from sales value of the secondary item. The entire amount is kept as a credit to the account for processing.
This method has some dew back hence bit disadvantageous.
In this process, entire expenditures for distribution, selling, more processing and also profit that are estimated at the point of diversified are reduced from the sales value of byproduct.
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- Cost method and its categories –
In one process secondary item is taken as raw material. In second process, a standard expenditure is fixed on the basis of previous expenditure.When byproduct has a considerable value, then it is determined as a portion of joint cost up to split time
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