Closing Stock (at Finished Goods/Stock Stage) in Process Account

Accounting Treatment

The value of opening stock of finished goods brought forward from the previous period is debited to the Process Stock a/c (as opening balance - using the opening entry). Debit » Process Stock a/c (bal b/d) The value of production completed during the current period is transferred from the Process a/c to the Process Stock a/c. Debit » Process Stock a/c Credit » Process a/c The value of closing stock of finished goods is carried forward within the Process Stock a/c to the subsequent accounting period (as closing balance - using the closing entry). Credit » Process Stock a/c (bal c/d) The balancing figure in the process stock account represents the value of output transferred to the subsequent process or disposed off otherwise as indicated. For the value of output transferred to the subsequent process Debit » Subsequent Process a/c Credit » Process Stock a/c

Illustration (with Opening Stock of Finished Goods)

The following details relate to an intermediary process (Y): Opening Finished Stock : 1,200 units valued at Rs. 40,800; Transfer from Process X : 24,200 units @ Rs. 18/unit; Material introduced : 800 units @ Rs. 30/unit. Direct Labour : Rs. 1,43,400; Production Overheads : Rs. 2,35,000, Normal Loss : 8% of total input processed. These units have a realisable value of Rs. 12/unit . The actual output from the process during the current period is 22,500 units. 1,500 units of completed production remained in stock at the end. The remainder of the goods have been transferred to "Process Z" Dr Process Y a/c Cr Particulars Quantity (in Units) Amount (in Rs) Particulars Quantity (in Units) Amount (in Rs) To Process X a/c (Primary) To Material (Secondary) To Direct Labour/Labor To Production Overheads 24,200 800 4,35,600 24,000 1,43,400 2,35,000 By Normal Loss a/c ** By Abnormal Loss a/c ** By Process Y Stock a/c * 2,000 500 22,500 10,000 18,000 8,10,000   25,000 8,38,000   25,000 8,38,000             Working Notes » Hide/Show • Gross/Total Input Units [GIU/TIU] = Materials (Input) Received from Process X     + Materials introduced in the process = 24,200 units + 800 units = 25,000 units • Units Processed [UP] = Gross input Units = 25,000 units • Normal Loss Units [NLU] = 8 % of total input in processing = 25,000 units × 8% = 2,000 units • Normal Output Units [NOU] = UP − NLU = 25,000 units − 2,000 units = 23,000 units • Actual Output Units [AOU] = 22,500 units • Abnormal Loss/Gain Since AOU < NOU, there is abnormal loss. • Abnormal Loss Units [ALU] = NOU − AOU = 23,000 units − 22,500 units = 500 units • Total Cost [TC] = Rs. (4,35,600 + 24,000 + 1,43,400 + 2,35,000) = Rs. 8,38,000 • Normal Loss Realisation [NLR] = NL in units × Scrap Rate/unit = 2,000 units × Rs. 5/unit = Rs. 10,000 • Normal Cost [NC] = TC − NLR = Rs. 8,38,000 − 10,000 = Rs. 8,28,000 • Normal Cost of Normal Output per unit [NCNO/Unit] = NC NOU = Rs. 8,28,000 23,000 units = Rs. 36/unit Normal loss is valued at market price and all others are valued at the "Normal Cost of Normal Output per unit". Thus actual output and abnormal loss are valued at NCNO/U, The value of output transferred to the next process should always be ascertained using this method and not as a balancing figure. • Value of Actual Output = AOU × NCNO/Unit = 22,500 units × Rs. 36/unit = Rs. 8,10,000 • Value of Abnormal Loss = ALU × NCNO/Unit = 500 units × Rs. 36/unit = Rs. 18,000 Dr Process Y Stock a/c Cr Particulars Quantity (in Units) Amount (in Rs) Particulars Quantity (in Units) Amount (in Rs) To Bal b/d To Process Y a/c 1,200 22,500 40,800 8,10,000 By Process Z a/c ** By Bal c/d * 22,200 1,500 7,96,800 54,000   23,700 8,50,800   23,700 8,50,800             * Values relating to these are derived through calculations. ** Quantities and Values relating to these are derived through calculations. Working Notes » Hide/Show • Opening Stock [OSU] = 1,200 units • Closing Stock [CSU] = 1,500 units • Units Produced [UP] = 22,500 units • Stock Transferred [ST] = OSU + UP − CSU = 1,200 units + 22,500 units − 1,500 units) = 22,200 units The total closing stock is assumed to be related to stock produced during the current period, assuming FIFO method for stock disposal and valuation. Thus the value of closing stock is made at the rate at which the current period goods/stock have been received from the process account. Rates for Stock Valuation Particulars Quantity Amount Rate Opening Stock current period receipt 1,200 22,500 40,800 8,10,000 34.00 36.00 Total Stock 23,700 8,50,800 35.90 Rate for Valuation::   FIFO method   LIFO method   Average method     36.00 34.00 35.90 LIFO, FIFO and Average methods are the three most commonly used methods for valuing the stocks. Each method takes a distinct unit rate for valuing closing stock. • Value of Opening Stock [VOS] = Rs. 40,800 (given) • Value of Production received [VP] = Rs. 8,10,000 (From process account) • Value of Closing Stock [VCS] = CSU × Rate/unit = 1,500 units × Rs. 36/unit = Rs. 54,000 The value of output transferred to the next process in such a case is the balance after deducting the value of closing stock from the total value of goods (opening stock and current period production received). • Cost of Output Transferred = VOS + VP − VCS = Rs. 40,800 + Rs. 8,10,000 − Rs. 54,000 = Rs. 7,96,800 • Rate/unit for Output Transferred = Cost of Output Transferred Units Transferred = Rs. 7,96,800 22,200 = Rs. 35.89/unit process,cost,accounting,tutorials,study-notes,process accounting,process cost accounting,process costing system,work in process accounting,a process costing system,using process costing,use process costing,cost accounting,process manufacturing,process cost,costing methods,costing systems,costing techniques,process planning,product process,costing system,costing method,process industry,production process,process account

Recording Finished Stock within Process Account

t is theoretically possible to make adjustments for stocks of finished goods within the process account. However, in general, where there are stocks of finished goods in relation to a process, a separate stock account is maintained for each process and transfer of finished stocks to subsequent processes is done through this stock account. In such a case, preparation of "Process a/c" would be the same as in other cases. The only difference would be the presence of an additional ledger account in relation to each process where there are opening and closing finished goods inventories. Where the stocks are handled using the Process a/c itself, that account would contain the consolidated details of the two separate accounts i.e. the Process a/c and the Process Stock a/c. Reworking the illustration above, assuming that the stocks are handled through the "Process Y a/c" itself. Dr Process Y a/c Cr Particulars Quantity (in Units) Amount (in Rs) Particulars Quantity (in Units) Amount (in Rs) To bal b/d (Fin. Stock) To Process X a/c (Primary) To Material (Secondary) To Direct Labour/Labor To Production Overheads 1,200 24,200 800 40,800 4,35,600 24,000 1,43,400 2,35,000 By Normal Loss a/c ** By Abnormal Loss a/c ** By Process Z a/c * By Bal c/d (Fin. Stock) 2,000 500 22,200 1,500 10,000 18,000 7,96,800 54,000   26,200 8,78,800   26,200 8,78,800             Caution :: Workaround Abundant care should be taken in deciding upon the various figures in calculations if such a method is adopted. Till the figures for production are arrived at, the opening stock of finished goods should not be taken into consideration. To avoid confusion prepare the account in two stages, which in effect would be making up the accounts as in the first case. The only difference being the two accounts would be made up within a single account. Dr Process Y a/c Cr Particulars Quantity (in Units) Amount (in Rs) Particulars Quantity (in Units) Amount (in Rs) To Process X a/c (Primary) To Material (Secondary) To Direct Labour/Labor To Production Overheads 24,200 800 4,35,600 24,000 1,43,400 2,35,000 By Normal Loss a/c ** By Abnormal Loss a/c ** By Completed Production c/d * 2,000 500 22,500 10,000 18,000 8,10,000   25,000 8,38,000   25,000 8,38,000 To Bal b/d (Fin. Stock) To Completed Production b/d 1,200 22,500 40,800 8,10,000 By Process Z a/c ** By Bal c/d (Fin. Stock) * 22,200 1,500 7,96,800 54,000   23,700 8,50,800   23,700 8,50,800

Author Credit : The Edifier

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