Expenses may be incurred on the normal and abnormal loss stocks to sustain or enhance their value. These expenses may be paid by the consignor or the consignee.

Example

expenditure incurred

1. on normal loss (in transit) stock, by the consignor in cash 150
2. on abnormal loss (in storage) stock, by the consignee by cheque 250
3. on abnormal loss (in transit) stock, by the consignor, by cheque 150
4. on normal loss (in storage) stock, by the consignee, payment outstanding 50

Dr/Cr - Transaction analysis

• Debit - __ Loss a/c

  Nominal
  ↓
  Debit
  {all expenses & losses}

  On account of the expenditure incurred, the notional loss represented by the loss account increases

  Or

  Real
  ↓
  Debit
  {what comes in}

  On account of the expenditure incurred, the value of the notional asset represented by the loss account increases

  Note

  • Debit/Credit - Distinct Loss a/c

    To derive greater information relating to losses.

  • Debit - Combined Loss a/c

    To derive lesser information relating to losses.

• Credit -

  The account to be credited is dependent on who incurred the expenditure

  • Consignee

    Personal
    ↓
    Credit
    {the benefit giver}

    Where the expenditure has been incurred by the consignee, it has to be reimbursed to him and he would be the benefit giver.

  • Where the expenditure is incurred by the consignor, the account to be credited is further dependent on the mode of payment.

    • Cash

      Real
      ↓
      Credit
      {what goes out}

      Cash goes out as payment for expenses.

    • Bank

      Personal
      ↓
      Credit
      {the benefit giver}

      Amount goes out from the bank, making Bank the benefit giver.

    • Outstanding Expenses

      Personal
      ↓
      Credit
      {the benefit giver}

      The person to whom the expense is due, represented by the Outstanding Expenses a/c, would be the benefit giver.

Journal

1. Expenditure on Normal Loss (in transit)

   Normal Loss a/c To Cash a/c	Dr	150	150
   [For the expenditure on normal loss (in transit) paid in cash]

   • Opting to derive greater information

     Normal Loss in Transit a/c To Cash a/c

     Dr

     150

     150

2. Expenditure on Abnormal Loss (in storage) paid by the consignee

   Loss in Storage a/c To Consignee a/c	Dr	250	250
   [For the expenditure on abnormal loss (in storage) paid by the consignee]

   • Opting to derive greater information

     Abnormal Loss in Storage a/c To Consignee a/c

     Dr

     250

     250

   • Opting to derive lesser information

     Abnormal Loss a/c To Consignee a/c

     Dr

     250

     250

3. Expenditure on Abnormal Loss (in transit)

   Abnormal Loss a/c To Bank a/c	Dr	150	150
   [For the expenditure on abnormal loss (in transit) paid by cheque]

   • Opting to derive greater information

     Abnormal Loss in Transit a/c To Consignee a/c

     Dr

     150

     150

   • Opting to derive lesser information

     Abnormal Loss a/c To Consignee a/c

     Dr

     150

     150

4. Expenditure on Normal Loss (in storage)

   Normal Loss a/c To Consignee a/c	Dr	50	50
   [For the expenditure on normal loss (in storage) paid by the consignee]

   • Opting to derive greater information

     Normal Loss in Storage a/c To Cash a/c

     Dr

     50

     50

Ledger

One of the following sets of accounts will appear in the ledger depending on the choice made relating to the quantum of information that the accounting system has to provide.

• Normally

  Consignee a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  		By Loss in Storage By Normal Loss	250 50

  Normal Loss a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  To Cash To Consignee	150 50

  Loss in Transit a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  To Bank	150

  Loss in Storage a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  To Consignee	250

• Opting to derive greater information

  Consignee a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  		By Abnormal Loss in Storage By Normal Loss in Transit	250 50

  Normal Loss in Transit a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  To Cash	150

  Normal Loss in Storage a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  To Consignee	50

  Abnormal Loss in Transit a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  To Bank	150

  Abnormal Loss in Storage a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  To Consignee	250

• Opting to derive lesser information

  Normal Loss a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  To Cash To Consignee	150 50

  Abnormal Loss a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  To Consignee To Bank	250 150

  Consignee a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  		By Abnormal Loss By Normal Loss	250 50

Dr/Cr - Transaction analysis

To the consignee, this would be like any other expenditure paid on behalf of the consignor, which has to be reimbursed by the consignor.

• Debit - Consignor a/c

  The expenditure is incurred on behalf of the consignor who would be the benefit receiver.

• Credit -

  Depending on whether the expenditure has been paid for or not and the mode of payment, the relevant account is credited.

  • Cash

    Real
    ↓
    Credit
    {what goes out}

    Cash goes out as payment for expenses.

  • Bank

    Personal
    ↓
    Credit
    {the benefit giver}

    Amount goes out from the bank, making Bank the benefit giver.

  • Outstanding Expenses

    Personal
    ↓
    Credit
    {the benefit giver}

    The person to whom the expense is due, represented by the Outstanding Expenses a/c, would be the benefit giver.

Journal

1. Expenditure on Abnormal Loss (in storage) paid by cheque

   Consignor a/c To Bank a/c	Dr	250	250
   [For the expenditure on abnormal loss (in storage) paid by the consignee by cheque]

2. Expenditure on Normal Loss (in storage) outstanding

   Consignor a/c To Outstanding Expenses a/c	Dr	50	50
   [For the expenditure on normal loss (in storage) outstanding]

Ledger

Consignor a/c

Dr Cr
Particulars	Amount	Particulars	Amount
To Bank To Outstanding Expenses	250 50